Correlation Between KMD and JAR
Can any of the company-specific risk be diversified away by investing in both KMD and JAR 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 KMD and JAR into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between KMD and JAR, you can compare the effects of market volatilities on KMD and JAR 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 KMD with a short position of JAR. Check out your portfolio center. Please also check ongoing floating volatility patterns of KMD and JAR.
Diversification Opportunities for KMD and JAR
Very weak diversification
The 3 months correlation between KMD and JAR is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding KMD and JAR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JAR and KMD 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 KMD are associated (or correlated) with JAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JAR has no effect on the direction of KMD i.e., KMD and JAR go up and down completely randomly.
Pair Corralation between KMD and JAR
Assuming the 90 days trading horizon KMD is expected to under-perform the JAR. In addition to that, KMD is 1.4 times more volatile than JAR. It trades about -0.29 of its total potential returns per unit of risk. JAR is currently generating about -0.03 per unit of volatility. If you would invest 0.38 in JAR on November 1, 2024 and sell it today you would lose (0.01) from holding JAR or give up 3.63% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
KMD vs. JAR
Performance |
| Timeline |
| KMD |
| JAR |
KMD and JAR Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with KMD and JAR
The main advantage of trading using opposite KMD and JAR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KMD position performs unexpectedly, JAR 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 JAR will offset losses from the drop in JAR's long position.The idea behind KMD and JAR 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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