Correlation Between DATA and Kava
Can any of the company-specific risk be diversified away by investing in both DATA and Kava 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 DATA and Kava into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between DATA and Kava, you can compare the effects of market volatilities on DATA and Kava 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 DATA with a short position of Kava. Check out your portfolio center. Please also check ongoing floating volatility patterns of DATA and Kava.
Diversification Opportunities for DATA and Kava
Poor diversification
The 3 months correlation between DATA and Kava is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding DATA and Kava in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kava and DATA 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 DATA are associated (or correlated) with Kava. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kava has no effect on the direction of DATA i.e., DATA and Kava go up and down completely randomly.
Pair Corralation between DATA and Kava
Assuming the 90 days trading horizon DATA is expected to under-perform the Kava. In addition to that, DATA is 1.37 times more volatile than Kava. It trades about -0.53 of its total potential returns per unit of risk. Kava is currently generating about -0.07 per unit of volatility. If you would invest 50.00 in Kava on November 8, 2024 and sell it today you would lose (4.00) from holding Kava or give up 8.0% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
DATA vs. Kava
Performance |
| Timeline |
| DATA |
| Kava |
DATA and Kava Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with DATA and Kava
The main advantage of trading using opposite DATA and Kava positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DATA position performs unexpectedly, Kava 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 Kava will offset losses from the drop in Kava's long position.The idea behind DATA and Kava 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.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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