Correlation Between KRAKATAU STEEL and National Bank

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

By analyzing existing cross correlation between KRAKATAU STEEL B and National Bank Holdings, you can compare the effects of market volatilities on KRAKATAU STEEL and National Bank 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 KRAKATAU STEEL with a short position of National Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of KRAKATAU STEEL and National Bank.

Diversification Opportunities for KRAKATAU STEEL and National Bank

-0.29

Correlation Coefficient

KRAKATAU STEEL  National Bank

Very good diversification

The 3 months correlation between KRAKATAU and National is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding KRAKATAU STEEL B and National Bank Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Bank Holdings and KRAKATAU STEEL 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 KRAKATAU STEEL B are associated (or correlated) with National Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Bank Holdings has no effect on the direction of KRAKATAU STEEL i.e., KRAKATAU STEEL and National Bank go up and down completely randomly.

Pair Corralation between KRAKATAU STEEL and National Bank

Assuming the 90 days trading horizon KRAKATAU STEEL B is expected to generate 4.65 times more return on investment than National Bank. However, KRAKATAU STEEL is 4.65 times more volatile than National Bank Holdings. It trades about 0.25 of its potential returns per unit of risk. National Bank Holdings is currently generating about -0.16 per unit of risk. If you would invest  0.60  in KRAKATAU STEEL B on October 15, 2024 and sell it today you would earn a total of  0.25  from holding KRAKATAU STEEL B or generate 41.67% return on investment over 90 days.

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

KRAKATAU STEEL B   vs.  National Bank Holdings

KRAKATAU STEEL B

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KRAKATAU STEEL B are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward-looking signals, KRAKATAU STEEL unveiled solid returns over the last few months and may actually be approaching a breakup point.

National Bank Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in National Bank Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, National Bank may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with KRAKATAU STEEL and National Bank

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

The idea behind KRAKATAU STEEL B and National Bank Holdings 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.