Correlation Between Top Material and KTB Investment

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

By analyzing existing cross correlation between Top Material Co and KTB Investment Securities, you can compare the effects of market volatilities on Top Material and KTB 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 Top Material with a short position of KTB Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Top Material and KTB Investment.

Diversification Opportunities for Top Material and KTB Investment

0.0

Correlation Coefficient

Top Material  KTB Investment

Pay attention - limited upside

The 3 months correlation between Top and KTB is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Top Material Co and KTB Investment Securities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KTB Investment Securities and Top Material 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 Top Material Co are associated (or correlated) with KTB Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KTB Investment Securities has no effect on the direction of Top Material i.e., Top Material and KTB Investment go up and down completely randomly.

Pair Corralation between Top Material and KTB Investment

Assuming the 90 days trading horizon Top Material Co is expected to generate 0.67 times more return on investment than KTB Investment. However, Top Material Co is 1.5 times less risky than KTB Investment. It trades about 0.16 of its potential returns per unit of risk. KTB Investment Securities is currently generating about -0.03 per unit of risk. If you would invest  2,645,000  in Top Material Co on October 21, 2024 and sell it today you would earn a total of  235,000  from holding Top Material Co or generate 8.88% return on investment over 90 days.

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

Top Material Co  vs.  KTB Investment Securities

Top Material

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Top Material Co 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.

KTB Investment Securities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KTB Investment Securities has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, KTB 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 Top Material and KTB Investment

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

The idea behind Top Material Co and KTB Investment Securities 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.