Correlation Between E Media and Kap Industrial

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

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

Diversification Opportunities for E Media and Kap Industrial

0.26

Correlation Coefficient

E Media  Kap Industrial

Modest diversification

The 3 months correlation between EMH and Kap is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding E Media Holdings 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 E Media 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 E Media Holdings 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 E Media i.e., E Media and Kap Industrial go up and down completely randomly.

Pair Corralation between E Media and Kap Industrial

Assuming the 90 days trading horizon E Media is expected to generate 1.38 times less return on investment than Kap Industrial. But when comparing it to its historical volatility, E Media Holdings is 1.22 times less risky than Kap Industrial. It trades about 0.15 of its potential returns per unit of risk. Kap Industrial Holdings is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  26,300  in Kap Industrial Holdings on December 4, 2024 and sell it today you would earn a total of  3,400  from holding Kap Industrial Holdings or generate 12.93% return on investment over 90 days.

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

E Media Holdings  vs.  Kap Industrial Holdings

E Media Holdings

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in E Media Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, E Media is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

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 E Media and Kap Industrial

The main advantage of trading using opposite E Media and Kap Industrial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if E Media 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 E Media Holdings 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.