Correlation Between Datatec and Kap Industrial

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

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

Diversification Opportunities for Datatec and Kap Industrial

-0.73

Correlation Coefficient

Datatec  Kap Industrial

Pay attention - limited upside

The 3 months correlation between Datatec and Kap is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Datatec 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 Datatec 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 Datatec 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 Datatec i.e., Datatec and Kap Industrial go up and down completely randomly.

Pair Corralation between Datatec and Kap Industrial

Assuming the 90 days trading horizon Datatec is expected to generate 1.1 times more return on investment than Kap Industrial. However, Datatec is 1.1 times more volatile than Kap Industrial Holdings. It trades about 0.23 of its potential returns per unit of risk. Kap Industrial Holdings is currently generating about -0.13 per unit of risk. If you would invest  376,200  in Datatec on October 8, 2024 and sell it today you would earn a total of  121,200  from holding Datatec or generate 32.22% return on investment over 90 days.

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

Datatec  vs.  Kap Industrial Holdings

Datatec

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Datatec are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Datatec exhibited solid returns over the last few months and may actually be approaching a breakup point.

Kap Industrial Holdings

Risk-Adjusted Performance

0 of 100

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 unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Datatec and Kap Industrial

The main advantage of trading using opposite Datatec and Kap Industrial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Datatec 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 Datatec 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.