Correlation Between Kinder Morgan and Highlight Communications

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

By analyzing existing cross correlation between Kinder Morgan and Highlight Communications AG, you can compare the effects of market volatilities on Kinder Morgan and Highlight Communications 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 Kinder Morgan with a short position of Highlight Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kinder Morgan and Highlight Communications.

Diversification Opportunities for Kinder Morgan and Highlight Communications

0.79

Correlation Coefficient

Kinder Morgan  Highlight Communications

Poor diversification

The 3 months correlation between Kinder and Highlight is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Kinder Morgan and Highlight Communications AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Highlight Communications and Kinder Morgan 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 Kinder Morgan are associated (or correlated) with Highlight Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Highlight Communications has no effect on the direction of Kinder Morgan i.e., Kinder Morgan and Highlight Communications go up and down completely randomly.

Pair Corralation between Kinder Morgan and Highlight Communications

Assuming the 90 days horizon Kinder Morgan is expected to generate 1.73 times less return on investment than Highlight Communications. But when comparing it to its historical volatility, Kinder Morgan is 2.22 times less risky than Highlight Communications. It trades about 0.24 of its potential returns per unit of risk. Highlight Communications AG is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  97.00  in Highlight Communications AG on October 24, 2024 and sell it today you would earn a total of  52.00  from holding Highlight Communications AG or generate 53.61% return on investment over 90 days.

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

Kinder Morgan  vs.  Highlight Communications AG

Kinder Morgan

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Kinder Morgan are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Kinder Morgan reported solid returns over the last few months and may actually be approaching a breakup point.

Highlight Communications

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Highlight Communications AG are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady technical and fundamental indicators, Highlight Communications unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kinder Morgan and Highlight Communications

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

The idea behind Kinder Morgan and Highlight Communications AG 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.