Correlation Between Dom Development and KCI SA

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

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

Diversification Opportunities for Dom Development and KCI SA

0.02

Correlation Coefficient

Dom Development  KCI SA

Significant diversification

The 3 months correlation between Dom and KCI is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Dom Development SA and KCI SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KCI SA and Dom Development 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 Dom Development SA are associated (or correlated) with KCI SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KCI SA has no effect on the direction of Dom Development i.e., Dom Development and KCI SA go up and down completely randomly.

Pair Corralation between Dom Development and KCI SA

Assuming the 90 days trading horizon Dom Development is expected to generate 1.39 times less return on investment than KCI SA. But when comparing it to its historical volatility, Dom Development SA is 1.14 times less risky than KCI SA. It trades about 0.06 of its potential returns per unit of risk. KCI SA is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  81.00  in KCI SA on October 10, 2024 and sell it today you would earn a total of  6.00  from holding KCI SA or generate 7.41% return on investment over 90 days.

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

Dom Development SA  vs.  KCI SA

Dom Development SA

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dom Development SA are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Dom Development may actually be approaching a critical reversion point that can send shares even higher in February 2025.

KCI SA

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in KCI SA are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, KCI SA may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Dom Development and KCI SA

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

The idea behind Dom Development SA and KCI SA 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.