Correlation Between KMH Hitech and ABCO Electronics

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

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

Diversification Opportunities for KMH Hitech and ABCO Electronics

0.91

Correlation Coefficient

KMH Hitech  ABCO Electronics

Almost no diversification

The 3 months correlation between KMH and ABCO is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding KMH Hitech Co and ABCO Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABCO Electronics and KMH Hitech 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 KMH Hitech Co are associated (or correlated) with ABCO Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABCO Electronics has no effect on the direction of KMH Hitech i.e., KMH Hitech and ABCO Electronics go up and down completely randomly.

Pair Corralation between KMH Hitech and ABCO Electronics

Assuming the 90 days trading horizon KMH Hitech is expected to generate 2.87 times less return on investment than ABCO Electronics. But when comparing it to its historical volatility, KMH Hitech Co is 1.59 times less risky than ABCO Electronics. It trades about 0.23 of its potential returns per unit of risk. ABCO Electronics Co is currently generating about 0.42 of returns per unit of risk over similar time horizon. If you would invest  461,000  in ABCO Electronics Co on October 24, 2024 and sell it today you would earn a total of  107,000  from holding ABCO Electronics Co or generate 23.21% return on investment over 90 days.

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

KMH Hitech Co  vs.  ABCO Electronics Co

KMH Hitech

Risk-Adjusted Performance

0 of 100

Very Weak

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

ABCO Electronics

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ABCO Electronics Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ABCO Electronics sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KMH Hitech and ABCO Electronics

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

The idea behind KMH Hitech Co and ABCO 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.