Correlation Between K W and Communication System
Can any of the company-specific risk be diversified away by investing in both K W and Communication System 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 K W and Communication System into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between K W Metal and Communication System Solution, you can compare the effects of market volatilities on K W and Communication System 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 K W with a short position of Communication System. Check out your portfolio center. Please also check ongoing floating volatility patterns of K W and Communication System.
Diversification Opportunities for K W and Communication System
0.04 | Correlation Coefficient |
Significant diversification
The 3 months correlation between KWM and Communication is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding K W Metal and Communication System Solution in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Communication System and K W 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 K W Metal are associated (or correlated) with Communication System. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Communication System has no effect on the direction of K W i.e., K W and Communication System go up and down completely randomly.
Pair Corralation between K W and Communication System
Assuming the 90 days trading horizon K W is expected to generate 1.03 times less return on investment than Communication System. But when comparing it to its historical volatility, K W Metal is 1.0 times less risky than Communication System. It trades about 0.04 of its potential returns per unit of risk. Communication System Solution is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 137.00 in Communication System Solution on September 13, 2024 and sell it today you would lose (42.00) from holding Communication System Solution or give up 30.66% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
K W Metal vs. Communication System Solution
Performance |
| Timeline |
| K W Metal |
| Communication System |
K W and Communication System Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with K W and Communication System
The main advantage of trading using opposite K W and Communication System positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if K W position performs unexpectedly, Communication System 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 Communication System will offset losses from the drop in Communication System's long position.| K W vs. Masterkool International Public | K W vs. Infraset Public | K W vs. KC Metalsheet Public | K W vs. DOD Biotech Public |
| Communication System vs. Tata Steel Public | Communication System vs. TTCL Public | Communication System vs. Thaifoods Group Public | Communication System vs. TMT Steel Public |
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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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