Correlation Between UQC and KMD
Can any of the company-specific risk be diversified away by investing in both UQC 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 UQC and KMD into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between UQC and KMD, you can compare the effects of market volatilities on UQC 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 UQC with a short position of KMD. Check out your portfolio center. Please also check ongoing floating volatility patterns of UQC and KMD.
Diversification Opportunities for UQC and KMD
Weak diversification
The 3 months correlation between UQC and KMD is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding UQC and KMD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KMD and UQC 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 UQC 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 UQC i.e., UQC and KMD go up and down completely randomly.
Pair Corralation between UQC and KMD
Assuming the 90 days trading horizon UQC is expected to generate 2.34 times more return on investment than KMD. However, UQC is 2.34 times more volatile than KMD. It trades about 0.13 of its potential returns per unit of risk. KMD is currently generating about 0.25 per unit of risk. If you would invest 765.00 in UQC on August 30, 2024 and sell it today you would earn a total of 167.00 from holding UQC or generate 21.83% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
UQC vs. KMD
Performance |
| Timeline |
| UQC |
| KMD |
UQC and KMD Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with UQC and KMD
The main advantage of trading using opposite UQC and KMD positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if UQC 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 UQC 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.
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