Correlation Between K2 Asset and Premier Investments

Can any of the company-specific risk be diversified away by investing in both K2 Asset and Premier Investments 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 Premier Investments 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 Premier Investments, you can compare the effects of market volatilities on K2 Asset and Premier Investments 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 Premier Investments. Check out your portfolio center. Please also check ongoing floating volatility patterns of K2 Asset and Premier Investments.

Diversification Opportunities for K2 Asset and Premier Investments

0.72

Correlation Coefficient

K2 Asset  Premier Investments

Poor diversification

The 3 months correlation between KAM and Premier is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding K2 Asset Management and Premier Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Premier Investments 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 Premier Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Premier Investments has no effect on the direction of K2 Asset i.e., K2 Asset and Premier Investments go up and down completely randomly.

Pair Corralation between K2 Asset and Premier Investments

Assuming the 90 days trading horizon K2 Asset Management is expected to generate 1.65 times more return on investment than Premier Investments. However, K2 Asset is 1.65 times more volatile than Premier Investments. It trades about 0.19 of its potential returns per unit of risk. Premier Investments is currently generating about 0.09 per unit of risk. If you would invest  5.10  in K2 Asset Management on October 7, 2024 and sell it today you would earn a total of  2.00  from holding K2 Asset Management or generate 39.22% return on investment over 90 days.

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

K2 Asset Management  vs.  Premier Investments

K2 Asset Management

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in K2 Asset Management are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain primary indicators, K2 Asset unveiled solid returns over the last few months and may actually be approaching a breakup point.

Premier Investments

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Premier Investments are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Premier Investments may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with K2 Asset and Premier Investments

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

The idea behind K2 Asset Management and Premier Investments 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.

Check out your portfolio center.

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.