Correlation Between Leader Steel and KL Technology

Can any of the company-specific risk be diversified away by investing in both Leader Steel and KL Technology 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 Leader Steel and KL Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Leader Steel Holdings and KL Technology, you can compare the effects of market volatilities on Leader Steel and KL Technology 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 Leader Steel with a short position of KL Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Leader Steel and KL Technology.

Diversification Opportunities for Leader Steel and KL Technology

-0.67

Correlation Coefficient

Leader Steel  KL Technology

Excellent diversification

The 3 months correlation between Leader and KLTE is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Leader Steel Holdings and KL Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KL Technology and Leader Steel 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 Leader Steel Holdings are associated (or correlated) with KL Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KL Technology has no effect on the direction of Leader Steel i.e., Leader Steel and KL Technology go up and down completely randomly.

Pair Corralation between Leader Steel and KL Technology

Assuming the 90 days trading horizon Leader Steel Holdings is expected to under-perform the KL Technology. In addition to that, Leader Steel is 2.01 times more volatile than KL Technology. It trades about -0.05 of its total potential returns per unit of risk. KL Technology is currently generating about 0.15 per unit of volatility. If you would invest  5,893  in KL Technology on September 26, 2024 and sell it today you would earn a total of  517.00  from holding KL Technology or generate 8.77% return on investment over 90 days.

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

Leader Steel Holdings  vs.  KL Technology

Pair Trading with Leader Steel and KL Technology

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

The idea behind Leader Steel Holdings and KL Technology 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.

Check out your portfolio center.

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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.