Correlation Between Kenda Rubber and Formosan Rubber

Can any of the company-specific risk be diversified away by investing in both Kenda Rubber and Formosan Rubber at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Kenda Rubber and Formosan Rubber into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Kenda Rubber Industrial and Formosan Rubber Group, you can compare the effects of market volatilities on Kenda Rubber and Formosan Rubber and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Kenda Rubber with a short position of Formosan Rubber. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kenda Rubber and Formosan Rubber.

Diversification Opportunities for Kenda Rubber and Formosan Rubber

0.91

Correlation Coefficient

Kenda Rubber  Formosan Rubber

Almost no diversification

The 3 months correlation between Kenda and Formosan is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Kenda Rubber Industrial and Formosan Rubber Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formosan Rubber Group and Kenda Rubber is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Kenda Rubber Industrial are associated (or correlated) with Formosan Rubber. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formosan Rubber Group has no effect on the direction of Kenda Rubber i.e., Kenda Rubber and Formosan Rubber go up and down completely randomly.

Pair Corralation between Kenda Rubber and Formosan Rubber

Assuming the 90 days trading horizon Kenda Rubber Industrial is expected to generate 0.94 times more return on investment than Formosan Rubber. However, Kenda Rubber Industrial is 1.06 times less risky than Formosan Rubber. It trades about 0.26 of its potential returns per unit of risk. Formosan Rubber Group is currently generating about 0.24 per unit of risk. If you would invest  3,290  in Kenda Rubber Industrial on February 16, 2024 and sell it today you would earn a total of  250.00  from holding Kenda Rubber Industrial or generate 7.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Kenda Rubber Industrial  vs.  Formosan Rubber Group

Kenda Rubber Industrial

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Kenda Rubber Industrial are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Kenda Rubber showed solid returns over the last few months and may actually be approaching a breakup point.

Formosan Rubber Group

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Formosan Rubber Group are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Formosan Rubber showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kenda Rubber and Formosan Rubber

The main advantage of trading using opposite Kenda Rubber and Formosan Rubber positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kenda Rubber position performs unexpectedly, Formosan Rubber can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Formosan Rubber will offset losses from the drop in Formosan Rubber's long position.

The idea behind Kenda Rubber Industrial and Formosan Rubber Group pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.