Correlation Between China Securities and KSEC Intelligent

Can any of the company-specific risk be diversified away by investing in both China Securities and KSEC Intelligent 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 China Securities and KSEC Intelligent into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between China Securities 800 and KSEC Intelligent Technology, you can compare the effects of market volatilities on China Securities and KSEC Intelligent 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 China Securities with a short position of KSEC Intelligent. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Securities and KSEC Intelligent.

Diversification Opportunities for China Securities and KSEC Intelligent

0.83

Correlation Coefficient

China Securities  KSEC Intelligent

Very poor diversification

The 3 months correlation between China and KSEC is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding China Securities 800 and KSEC Intelligent Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KSEC Intelligent Tec and China Securities 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 China Securities 800 are associated (or correlated) with KSEC Intelligent. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KSEC Intelligent Tec has no effect on the direction of China Securities i.e., China Securities and KSEC Intelligent go up and down completely randomly.

Pair Corralation between China Securities and KSEC Intelligent

Assuming the 90 days trading horizon China Securities is expected to generate 13.94 times less return on investment than KSEC Intelligent. But when comparing it to its historical volatility, China Securities 800 is 3.34 times less risky than KSEC Intelligent. It trades about 0.01 of its potential returns per unit of risk. KSEC Intelligent Technology is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,830  in KSEC Intelligent Technology on September 26, 2024 and sell it today you would earn a total of  113.00  from holding KSEC Intelligent Technology or generate 6.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.79%
Values	Daily Returns

China Securities 800  vs.  KSEC Intelligent Technology

Pair Trading with China Securities and KSEC Intelligent

The main advantage of trading using opposite China Securities and KSEC Intelligent positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Securities position performs unexpectedly, KSEC Intelligent 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 KSEC Intelligent will offset losses from the drop in KSEC Intelligent's long position.

The idea behind China Securities 800 and KSEC Intelligent Technology 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.

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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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.