Correlation Between EV Advanced and KCI

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

By analyzing existing cross correlation between EV Advanced Material and KCI Limited, you can compare the effects of market volatilities on EV Advanced and KCI 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 EV Advanced with a short position of KCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of EV Advanced and KCI.

Diversification Opportunities for EV Advanced and KCI

-0.24

Correlation Coefficient

EV Advanced  KCI

Very good diversification

The 3 months correlation between 131400 and KCI is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding EV Advanced Material and KCI Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KCI Limited and EV Advanced 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 EV Advanced Material are associated (or correlated) with KCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KCI Limited has no effect on the direction of EV Advanced i.e., EV Advanced and KCI go up and down completely randomly.

Pair Corralation between EV Advanced and KCI

Assuming the 90 days trading horizon EV Advanced Material is expected to under-perform the KCI. In addition to that, EV Advanced is 2.76 times more volatile than KCI Limited. It trades about -0.06 of its total potential returns per unit of risk. KCI Limited is currently generating about -0.12 per unit of volatility. If you would invest  661,000  in KCI Limited on December 28, 2024 and sell it today you would lose (36,000) from holding KCI Limited or give up 5.45% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.28%
Values	Daily Returns

EV Advanced Material  vs.  KCI Limited

EV Advanced Material

Risk-Adjusted Performance

Very Weak

Over the last 90 days EV Advanced Material has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

KCI Limited

Risk-Adjusted Performance

Very Weak

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

Pair Trading with EV Advanced and KCI

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

The idea behind EV Advanced Material and KCI Limited 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.