Correlation Between AECI and Kap Industrial

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

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

Diversification Opportunities for AECI and Kap Industrial

0.26

Correlation Coefficient

AECI  Kap Industrial

Modest diversification

The 3 months correlation between AECI and Kap is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding AECI and Kap Industrial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kap Industrial Holdings and AECI 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 AECI are associated (or correlated) with Kap Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kap Industrial Holdings has no effect on the direction of AECI i.e., AECI and Kap Industrial go up and down completely randomly.

Pair Corralation between AECI and Kap Industrial

Assuming the 90 days trading horizon AECI is expected to generate 0.59 times more return on investment than Kap Industrial. However, AECI is 1.68 times less risky than Kap Industrial. It trades about 0.11 of its potential returns per unit of risk. Kap Industrial Holdings is currently generating about -0.05 per unit of risk. If you would invest  890,900  in AECI on December 19, 2024 and sell it today you would earn a total of  101,000  from holding AECI or generate 11.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

AECI  vs.  Kap Industrial Holdings

AECI

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AECI are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, AECI may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Kap Industrial Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kap Industrial Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with AECI and Kap Industrial

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

The idea behind AECI and Kap Industrial Holdings 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.