Correlation Between POCC and KMD
Can any of the company-specific risk be diversified away by investing in both POCC and KMD 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 POCC and KMD into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between POCC and KMD, you can compare the effects of market volatilities on POCC and KMD 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 POCC with a short position of KMD. Check out your portfolio center. Please also check ongoing floating volatility patterns of POCC and KMD.
Diversification Opportunities for POCC and KMD
Weak diversification
The 3 months correlation between POCC and KMD is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding POCC and KMD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KMD and POCC 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 POCC are associated (or correlated) with KMD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KMD has no effect on the direction of POCC i.e., POCC and KMD go up and down completely randomly.
Pair Corralation between POCC and KMD
Assuming the 90 days trading horizon POCC is expected to generate 0.89 times more return on investment than KMD. However, POCC is 1.13 times less risky than KMD. It trades about 0.35 of its potential returns per unit of risk. KMD is currently generating about 0.24 per unit of risk. If you would invest 0.01 in POCC on August 25, 2024 and sell it today you would earn a total of 0.00 from holding POCC or generate 36.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
POCC vs. KMD
Performance |
| Timeline |
| POCC |
| KMD |
POCC and KMD Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with POCC and KMD
The main advantage of trading using opposite POCC and KMD positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if POCC position performs unexpectedly, KMD 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 KMD will offset losses from the drop in KMD's long position.The idea behind POCC and KMD 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
Other Complementary Tools
| Crypto Correlations Use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins | |
| Global Markets Map Get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes | |
| Portfolio File Import Quickly import all of your third-party portfolios from your local drive in csv format | |
| Fundamentals Comparison Compare fundamentals across multiple equities to find investing opportunities | |
| Investing Opportunities Build portfolios using our predefined set of ideas and optimize them against your investing preferences |