Correlation Between Western Metal and King Strong

Can any of the company-specific risk be diversified away by investing in both Western Metal and King Strong 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 Western Metal and King Strong into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Western Metal Materials and King Strong New Material, you can compare the effects of market volatilities on Western Metal and King Strong 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 Western Metal with a short position of King Strong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Metal and King Strong.

Diversification Opportunities for Western Metal and King Strong

0.97

Correlation Coefficient

Western Metal  King Strong

Almost no diversification

The 3 months correlation between Western and King is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Western Metal Materials and King Strong New Material in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on King Strong New and Western Metal 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 Western Metal Materials are associated (or correlated) with King Strong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of King Strong New has no effect on the direction of Western Metal i.e., Western Metal and King Strong go up and down completely randomly.

Pair Corralation between Western Metal and King Strong

Assuming the 90 days trading horizon Western Metal is expected to generate 1.85 times less return on investment than King Strong. But when comparing it to its historical volatility, Western Metal Materials is 1.42 times less risky than King Strong. It trades about 0.14 of its potential returns per unit of risk. King Strong New Material is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1,553  in King Strong New Material on September 4, 2024 and sell it today you would earn a total of  813.00  from holding King Strong New Material or generate 52.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Western Metal Materials  vs.  King Strong New Material

Western Metal Materials

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Western Metal Materials are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Western Metal sustained solid returns over the last few months and may actually be approaching a breakup point.

King Strong New

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in King Strong New Material are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, King Strong sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Western Metal and King Strong

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

The idea behind Western Metal Materials and King Strong New Material 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..