Correlation Between RF Materials and KCC Engineering

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

By analyzing existing cross correlation between RF Materials Co and KCC Engineering Construction, you can compare the effects of market volatilities on RF Materials and KCC Engineering 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 RF Materials with a short position of KCC Engineering. Check out your portfolio center. Please also check ongoing floating volatility patterns of RF Materials and KCC Engineering.

Diversification Opportunities for RF Materials and KCC Engineering

-0.35

Correlation Coefficient

RF Materials  KCC Engineering

Very good diversification

The 3 months correlation between 327260 and KCC is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding RF Materials Co and KCC Engineering Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KCC Engineering Cons and RF Materials 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 RF Materials Co are associated (or correlated) with KCC Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KCC Engineering Cons has no effect on the direction of RF Materials i.e., RF Materials and KCC Engineering go up and down completely randomly.

Pair Corralation between RF Materials and KCC Engineering

Assuming the 90 days trading horizon RF Materials Co is expected to generate 2.8 times more return on investment than KCC Engineering. However, RF Materials is 2.8 times more volatile than KCC Engineering Construction. It trades about 0.19 of its potential returns per unit of risk. KCC Engineering Construction is currently generating about -0.03 per unit of risk. If you would invest  472,500  in RF Materials Co on December 22, 2024 and sell it today you would earn a total of  174,500  from holding RF Materials Co or generate 36.93% return on investment over 90 days.

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

RF Materials Co  vs.  KCC Engineering Construction

RF Materials

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in RF Materials Co are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, RF Materials sustained solid returns over the last few months and may actually be approaching a breakup point.

KCC Engineering Cons

Risk-Adjusted Performance

Very Weak

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

Pair Trading with RF Materials and KCC Engineering

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

The idea behind RF Materials Co and KCC Engineering Construction 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.