Correlation Between Kap Industrial and AECI

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

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

Diversification Opportunities for Kap Industrial and AECI

0.89

Correlation Coefficient

Kap Industrial  AECI

Very poor diversification

The 3 months correlation between Kap and AECI is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Kap Industrial Holdings and AECI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AECI and Kap Industrial 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 Kap Industrial Holdings are associated (or correlated) with AECI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AECI has no effect on the direction of Kap Industrial i.e., Kap Industrial and AECI go up and down completely randomly.

Pair Corralation between Kap Industrial and AECI

Assuming the 90 days trading horizon Kap Industrial Holdings is expected to generate 1.98 times more return on investment than AECI. However, Kap Industrial is 1.98 times more volatile than AECI. It trades about -0.04 of its potential returns per unit of risk. AECI is currently generating about -0.15 per unit of risk. If you would invest  29,700  in Kap Industrial Holdings on October 27, 2024 and sell it today you would lose (800.00) from holding Kap Industrial Holdings or give up 2.69% of portfolio value over 90 days.

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

Kap Industrial Holdings  vs.  AECI

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.

AECI

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AECI 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 Kap Industrial and AECI

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

The idea behind Kap Industrial Holdings and AECI 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.