Correlation Between Kg Chemical and Wave Electronics

Can any of the company-specific risk be diversified away by investing in both Kg Chemical and Wave Electronics 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 Kg Chemical and Wave Electronics into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Kg Chemical and Wave Electronics Co, you can compare the effects of market volatilities on Kg Chemical and Wave Electronics 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 Kg Chemical with a short position of Wave Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kg Chemical and Wave Electronics.

Diversification Opportunities for Kg Chemical and Wave Electronics

0.7

Correlation Coefficient

Kg Chemical  Wave Electronics

Poor diversification

The 3 months correlation between 001390 and Wave is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Kg Chemical and Wave Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wave Electronics and Kg Chemical 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 Kg Chemical are associated (or correlated) with Wave Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wave Electronics has no effect on the direction of Kg Chemical i.e., Kg Chemical and Wave Electronics go up and down completely randomly.

Pair Corralation between Kg Chemical and Wave Electronics

Assuming the 90 days trading horizon Kg Chemical is expected to generate 1.41 times more return on investment than Wave Electronics. However, Kg Chemical is 1.41 times more volatile than Wave Electronics Co. It trades about 0.01 of its potential returns per unit of risk. Wave Electronics Co is currently generating about -0.01 per unit of risk. If you would invest  423,116  in Kg Chemical on October 10, 2024 and sell it today you would lose (40,616) from holding Kg Chemical or give up 9.6% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.58%
Values	Daily Returns

Kg Chemical  vs.  Wave Electronics Co

Kg Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kg Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Kg Chemical is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Wave Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wave Electronics Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Kg Chemical and Wave Electronics

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

The idea behind Kg Chemical and Wave Electronics Co 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..