Correlation Between THENA and KMD
Can any of the company-specific risk be diversified away by investing in both THENA 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 THENA and KMD into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between THENA and KMD, you can compare the effects of market volatilities on THENA 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 THENA with a short position of KMD. Check out your portfolio center. Please also check ongoing floating volatility patterns of THENA and KMD.
Diversification Opportunities for THENA and KMD
Poor diversification
The 3 months correlation between THENA and KMD is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding THENA and KMD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KMD and THENA 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 THENA 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 THENA i.e., THENA and KMD go up and down completely randomly.
Pair Corralation between THENA and KMD
Assuming the 90 days trading horizon THENA is expected to under-perform the KMD. In addition to that, THENA is 1.34 times more volatile than KMD. It trades about -0.54 of its total potential returns per unit of risk. KMD is currently generating about -0.29 per unit of volatility. If you would invest 32.00 in KMD on November 1, 2024 and sell it today you would lose (9.00) from holding KMD or give up 28.12% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 80.95% |
| Values | Daily Returns |
THENA vs. KMD
Performance |
| Timeline |
| THENA |
| KMD |
THENA and KMD Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with THENA and KMD
The main advantage of trading using opposite THENA and KMD positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if THENA 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 THENA 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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