Correlation Between System and KPX Green

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

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

Diversification Opportunities for System and KPX Green

0.61

Correlation Coefficient

System  KPX Green

Poor diversification

The 3 months correlation between System and KPX is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding System and Application and KPX Green Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KPX Green Chemical and System 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 System and Application are associated (or correlated) with KPX Green. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KPX Green Chemical has no effect on the direction of System i.e., System and KPX Green go up and down completely randomly.

Pair Corralation between System and KPX Green

Assuming the 90 days trading horizon System is expected to generate 2.02 times less return on investment than KPX Green. In addition to that, System is 1.06 times more volatile than KPX Green Chemical. It trades about 0.12 of its total potential returns per unit of risk. KPX Green Chemical is currently generating about 0.27 per unit of volatility. If you would invest  481,000  in KPX Green Chemical on September 23, 2024 and sell it today you would earn a total of  159,000  from holding KPX Green Chemical or generate 33.06% return on investment over 90 days.

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

System and Application  vs.  KPX Green Chemical

System and Application

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in System and Application are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, System is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

KPX Green Chemical

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in KPX Green Chemical are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, KPX Green is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with System and KPX Green

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

The idea behind System and Application and KPX Green Chemical 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.