Correlation Between Kap Industrial and Europa Metals

Can any of the company-specific risk be diversified away by investing in both Kap Industrial and Europa 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 Kap Industrial and Europa Metals 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 Europa Metals, you can compare the effects of market volatilities on Kap Industrial and Europa 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 Kap Industrial with a short position of Europa Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kap Industrial and Europa Metals.

Diversification Opportunities for Kap Industrial and Europa Metals

0.26

Correlation Coefficient

Kap Industrial  Europa Metals

Modest diversification

The 3 months correlation between Kap and Europa is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Kap Industrial Holdings and Europa Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Europa Metals 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 Europa Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Europa Metals has no effect on the direction of Kap Industrial i.e., Kap Industrial and Europa Metals go up and down completely randomly.

Pair Corralation between Kap Industrial and Europa Metals

Assuming the 90 days trading horizon Kap Industrial Holdings is expected to generate 0.61 times more return on investment than Europa Metals. However, Kap Industrial Holdings is 1.64 times less risky than Europa Metals. It trades about -0.05 of its potential returns per unit of risk. Europa Metals is currently generating about -0.14 per unit of risk. If you would invest  29,600  in Kap Industrial Holdings on December 29, 2024 and sell it today you would lose (3,200) from holding Kap Industrial Holdings or give up 10.81% of portfolio value over 90 days.

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

Kap Industrial Holdings  vs.  Europa Metals

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.

Europa Metals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Europa Metals 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 April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Kap Industrial and Europa Metals

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

The idea behind Kap Industrial Holdings and Europa 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.