Correlation Between K2 Asset and Falcon Metals

Can any of the company-specific risk be diversified away by investing in both K2 Asset and Falcon Metals 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 K2 Asset and Falcon Metals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between K2 Asset Management and Falcon Metals, you can compare the effects of market volatilities on K2 Asset and Falcon Metals 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 K2 Asset with a short position of Falcon Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of K2 Asset and Falcon Metals.

Diversification Opportunities for K2 Asset and Falcon Metals

0.03

Correlation Coefficient

K2 Asset  Falcon Metals

Significant diversification

The 3 months correlation between KAM and Falcon is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding K2 Asset Management and Falcon Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Falcon Metals and K2 Asset 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 K2 Asset Management are associated (or correlated) with Falcon Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Falcon Metals has no effect on the direction of K2 Asset i.e., K2 Asset and Falcon Metals go up and down completely randomly.

Pair Corralation between K2 Asset and Falcon Metals

Assuming the 90 days trading horizon K2 Asset Management is expected to under-perform the Falcon Metals. But the stock apears to be less risky and, when comparing its historical volatility, K2 Asset Management is 1.91 times less risky than Falcon Metals. The stock trades about -0.02 of its potential returns per unit of risk. The Falcon Metals is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  12.00  in Falcon Metals on December 20, 2024 and sell it today you would earn a total of  3.00  from holding Falcon Metals or generate 25.0% return on investment over 90 days.

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

K2 Asset Management  vs.  Falcon Metals

K2 Asset Management

Risk-Adjusted Performance

Very Weak

Over the last 90 days K2 Asset Management has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable primary indicators, K2 Asset is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Falcon Metals

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Falcon Metals are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain essential indicators, Falcon Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with K2 Asset and Falcon Metals

The main advantage of trading using opposite K2 Asset and Falcon Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if K2 Asset position performs unexpectedly, Falcon Metals 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 Falcon Metals will offset losses from the drop in Falcon Metals' long position.

The idea behind K2 Asset Management and Falcon Metals 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.