Correlation Between PESTECH International and Kossan Rubber

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

By analyzing existing cross correlation between PESTECH International Bhd and Kossan Rubber Industries, you can compare the effects of market volatilities on PESTECH International and Kossan Rubber 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 PESTECH International with a short position of Kossan Rubber. Check out your portfolio center. Please also check ongoing floating volatility patterns of PESTECH International and Kossan Rubber.

Diversification Opportunities for PESTECH International and Kossan Rubber

0.62

Correlation Coefficient

PESTECH International  Kossan Rubber

Poor diversification

The 3 months correlation between PESTECH and Kossan is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding PESTECH International Bhd and Kossan Rubber Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kossan Rubber Industries and PESTECH International 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 PESTECH International Bhd are associated (or correlated) with Kossan Rubber. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kossan Rubber Industries has no effect on the direction of PESTECH International i.e., PESTECH International and Kossan Rubber go up and down completely randomly.

Pair Corralation between PESTECH International and Kossan Rubber

Assuming the 90 days trading horizon PESTECH International is expected to generate 1.1 times less return on investment than Kossan Rubber. In addition to that, PESTECH International is 1.74 times more volatile than Kossan Rubber Industries. It trades about 0.02 of its total potential returns per unit of risk. Kossan Rubber Industries is currently generating about 0.04 per unit of volatility. If you would invest  246.00  in Kossan Rubber Industries on October 7, 2024 and sell it today you would earn a total of  32.00  from holding Kossan Rubber Industries or generate 13.01% return on investment over 90 days.

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

PESTECH International Bhd  vs.  Kossan Rubber Industries

PESTECH International Bhd

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PESTECH International Bhd are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, PESTECH International disclosed solid returns over the last few months and may actually be approaching a breakup point.

Kossan Rubber Industries

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Kossan Rubber Industries are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Kossan Rubber disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PESTECH International and Kossan Rubber

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

The idea behind PESTECH International Bhd and Kossan Rubber Industries 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.