Correlation Between KPX Green and DSC Investment

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

Diversification Opportunities for KPX Green and DSC Investment

0.45

Correlation Coefficient

KPX Green  DSC Investment

Very weak diversification

The 3 months correlation between KPX and DSC is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding KPX Green Chemical and DSC Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DSC Investment 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 DSC Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DSC Investment has no effect on the direction of KPX Green i.e., KPX Green and DSC Investment go up and down completely randomly.

Pair Corralation between KPX Green and DSC Investment

Assuming the 90 days trading horizon KPX Green Chemical is expected to generate 2.05 times more return on investment than DSC Investment. However, KPX Green is 2.05 times more volatile than DSC Investment. It trades about 0.34 of its potential returns per unit of risk. DSC Investment is currently generating about 0.03 per unit of risk. If you would invest  473,555  in KPX Green Chemical on October 4, 2024 and sell it today you would earn a total of  209,445  from holding KPX Green Chemical or generate 44.23% return on investment over 90 days.

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

KPX Green Chemical  vs.  DSC Investment

KPX Green Chemical

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in KPX Green Chemical are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, KPX Green sustained solid returns over the last few months and may actually be approaching a breakup point.

DSC Investment

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in DSC Investment are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, DSC Investment 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 DSC Investment

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

The idea behind KPX Green Chemical and DSC Investment 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.