Correlation Between KBND and KBUY
Can any of the company-specific risk be diversified away by investing in both KBND and KBUY 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 KBND and KBUY into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between KBND and KBUY, you can compare the effects of market volatilities on KBND and KBUY 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 KBND with a short position of KBUY. Check out your portfolio center. Please also check ongoing floating volatility patterns of KBND and KBUY.
Diversification Opportunities for KBND and KBUY
Very poor diversification
The 3 months correlation between KBND and KBUY is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding KBND and KBUY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KBUY and KBND 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 KBND are associated (or correlated) with KBUY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KBUY has no effect on the direction of KBND i.e., KBND and KBUY go up and down completely randomly.
Pair Corralation between KBND and KBUY
Given the investment horizon of 90 days KBND is expected to generate 41.0 times less return on investment than KBUY. But when comparing it to its historical volatility, KBND is 4.33 times less risky than KBUY. It trades about 0.09 of its potential returns per unit of risk. KBUY is currently generating about 0.83 of returns per unit of risk over similar time horizon. If you would invest 1,705 in KBUY on September 12, 2024 and sell it today you would earn a total of 23.00 from holding KBUY or generate 1.35% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
KBND vs. KBUY
Performance |
| Timeline |
| KBND |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| KBUY |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
KBND and KBUY Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with KBND and KBUY
The main advantage of trading using opposite KBND and KBUY positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KBND position performs unexpectedly, KBUY 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 KBUY will offset losses from the drop in KBUY's long position.| KBND vs. First Trust SSI | KBND vs. First Trust BuyWrite | KBND vs. First Trust Managed | KBND vs. First Trust Tactical |
| KBUY vs. KraneShares CSI China | KBUY vs. Invesco China Technology | KBUY vs. iShares MSCI India | KBUY vs. Xtrackers Harvest CSI |
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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