Correlation Between Information Technology and CKM Building
Can any of the company-specific risk be diversified away by investing in both Information Technology and CKM Building 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 Information Technology and CKM Building into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Information Technology Total and CKM Building Material, you can compare the effects of market volatilities on Information Technology and CKM Building 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 Information Technology with a short position of CKM Building. Check out your portfolio center. Please also check ongoing floating volatility patterns of Information Technology and CKM Building.
Diversification Opportunities for Information Technology and CKM Building
-0.32 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Information and CKM is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Information Technology Total and CKM Building Material in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CKM Building Material and Information Technology 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 Information Technology Total are associated (or correlated) with CKM Building. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CKM Building Material has no effect on the direction of Information Technology i.e., Information Technology and CKM Building go up and down completely randomly.
Pair Corralation between Information Technology and CKM Building
Assuming the 90 days trading horizon Information Technology Total is expected to under-perform the CKM Building. In addition to that, Information Technology is 1.37 times more volatile than CKM Building Material. It trades about -0.23 of its total potential returns per unit of risk. CKM Building Material is currently generating about -0.08 per unit of volatility. If you would invest 3,460 in CKM Building Material on September 1, 2024 and sell it today you would lose (80.00) from holding CKM Building Material or give up 2.31% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Information Technology Total vs. CKM Building Material
Performance |
| Timeline |
| Information Technology |
| CKM Building Material |
Information Technology and CKM Building Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Information Technology and CKM Building
The main advantage of trading using opposite Information Technology and CKM Building positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Information Technology position performs unexpectedly, CKM Building 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 CKM Building will offset losses from the drop in CKM Building's long position.The idea behind Information Technology Total and CKM Building Material 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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Check out your portfolio center.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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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