Correlation Between IMGP DBi and KFA Mount

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

By analyzing existing cross correlation between iMGP DBi Managed and KFA Mount Lucas, you can compare the effects of market volatilities on IMGP DBi and KFA Mount 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 IMGP DBi with a short position of KFA Mount. Check out your portfolio center. Please also check ongoing floating volatility patterns of IMGP DBi and KFA Mount.

Diversification Opportunities for IMGP DBi and KFA Mount

0.19

Correlation Coefficient

IMGP DBi  KFA Mount

Average diversification

The 3 months correlation between IMGP and KFA is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding iMGP DBi Managed and KFA Mount Lucas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KFA Mount Lucas and IMGP DBi 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 iMGP DBi Managed are associated (or correlated) with KFA Mount. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KFA Mount Lucas has no effect on the direction of IMGP DBi i.e., IMGP DBi and KFA Mount go up and down completely randomly.

Pair Corralation between IMGP DBi and KFA Mount

Given the investment horizon of 90 days iMGP DBi Managed is expected to generate 0.84 times more return on investment than KFA Mount. However, iMGP DBi Managed is 1.19 times less risky than KFA Mount. It trades about -0.06 of its potential returns per unit of risk. KFA Mount Lucas is currently generating about -0.08 per unit of risk. If you would invest  2,612  in iMGP DBi Managed on December 26, 2024 and sell it today you would lose (60.00) from holding iMGP DBi Managed or give up 2.3% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

iMGP DBi Managed  vs.  KFA Mount Lucas

iMGP DBi Managed

Risk-Adjusted Performance

Very Weak

Over the last 90 days iMGP DBi Managed has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, IMGP DBi is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

KFA Mount Lucas

Risk-Adjusted Performance

Very Weak

Over the last 90 days KFA Mount Lucas has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy essential indicators, KFA Mount is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IMGP DBi and KFA Mount

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

The idea behind iMGP DBi Managed and KFA Mount Lucas 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.