Correlation Between KB No2 and PI Advanced

Can any of the company-specific risk be diversified away by investing in both KB No2 and PI Advanced 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 KB No2 and PI Advanced into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between KB No2 Special and PI Advanced Materials, you can compare the effects of market volatilities on KB No2 and PI Advanced 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 KB No2 with a short position of PI Advanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of KB No2 and PI Advanced.

Diversification Opportunities for KB No2 and PI Advanced

0.93

Correlation Coefficient

KB No2  PI Advanced

Almost no diversification

The 3 months correlation between 192250 and 178920 is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding KB No2 Special and PI Advanced Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PI Advanced Materials and KB No2 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 KB No2 Special are associated (or correlated) with PI Advanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PI Advanced Materials has no effect on the direction of KB No2 i.e., KB No2 and PI Advanced go up and down completely randomly.

Pair Corralation between KB No2 and PI Advanced

Assuming the 90 days trading horizon KB No2 Special is expected to under-perform the PI Advanced. But the stock apears to be less risky and, when comparing its historical volatility, KB No2 Special is 1.1 times less risky than PI Advanced. The stock trades about -0.05 of its potential returns per unit of risk. The PI Advanced Materials is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  2,715,000  in PI Advanced Materials on October 9, 2024 and sell it today you would lose (815,000) from holding PI Advanced Materials or give up 30.02% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	94.14%
Values	Daily Returns

KB No2 Special  vs.  PI Advanced Materials

KB No2 Special

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KB No2 Special has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

PI Advanced Materials

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with KB No2 and PI Advanced

The main advantage of trading using opposite KB No2 and PI Advanced positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KB No2 position performs unexpectedly, PI Advanced 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 PI Advanced will offset losses from the drop in PI Advanced's long position.

The idea behind KB No2 Special and PI Advanced Materials 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .