Correlation Between KPX Green and Dongnam Chemical

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

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

Diversification Opportunities for KPX Green and Dongnam Chemical

0.83

Correlation Coefficient

KPX Green  Dongnam Chemical

Very poor diversification

The 3 months correlation between KPX and Dongnam is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding KPX Green Chemical and Dongnam Chemical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongnam Chemical and KPX Green 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 KPX Green Chemical are associated (or correlated) with Dongnam Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongnam Chemical has no effect on the direction of KPX Green i.e., KPX Green and Dongnam Chemical go up and down completely randomly.

Pair Corralation between KPX Green and Dongnam Chemical

Assuming the 90 days trading horizon KPX Green Chemical is expected to generate 3.0 times more return on investment than Dongnam Chemical. However, KPX Green is 3.0 times more volatile than Dongnam Chemical Co. It trades about 0.26 of its potential returns per unit of risk. Dongnam Chemical Co is currently generating about 0.09 per unit of risk. If you would invest  485,000  in KPX Green Chemical on September 22, 2024 and sell it today you would earn a total of  155,000  from holding KPX Green Chemical or generate 31.96% return on investment over 90 days.

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

KPX Green Chemical  vs.  Dongnam Chemical Co

KPX Green Chemical

Risk-Adjusted Performance

1 of 100

Insignificant

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.

Dongnam Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with KPX Green and Dongnam Chemical

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

The idea behind KPX Green Chemical and Dongnam Chemical 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.