Correlation Between KMH Hitech and TES

Can any of the company-specific risk be diversified away by investing in both KMH Hitech and TES 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 TES 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 TES Co, you can compare the effects of market volatilities on KMH Hitech and TES 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 TES. Check out your portfolio center. Please also check ongoing floating volatility patterns of KMH Hitech and TES.

Diversification Opportunities for KMH Hitech and TES

0.1

Correlation Coefficient

KMH Hitech  TES

Average diversification

The 3 months correlation between KMH and TES is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding KMH Hitech Co and TES Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TES Co 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 TES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TES Co has no effect on the direction of KMH Hitech i.e., KMH Hitech and TES go up and down completely randomly.

Pair Corralation between KMH Hitech and TES

Assuming the 90 days trading horizon KMH Hitech is expected to generate 5.31 times less return on investment than TES. But when comparing it to its historical volatility, KMH Hitech Co is 2.61 times less risky than TES. It trades about 0.1 of its potential returns per unit of risk. TES Co is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  1,553,475  in TES Co on December 21, 2024 and sell it today you would earn a total of  831,525  from holding TES Co or generate 53.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.25%
Values	Daily Returns

KMH Hitech Co  vs.  TES Co

KMH Hitech

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KMH Hitech Co are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, KMH Hitech may actually be approaching a critical reversion point that can send shares even higher in April 2025.

TES Co

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in TES Co are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, TES sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KMH Hitech and TES

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

The idea behind KMH Hitech Co and TES 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.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.