Correlation Between KAT Exploration and Advantage Solutions

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

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

Diversification Opportunities for KAT Exploration and Advantage Solutions

-0.19

Correlation Coefficient

KAT Exploration  Advantage Solutions

Good diversification

The 3 months correlation between KAT and Advantage is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding KAT Exploration and Advantage Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advantage Solutions and KAT Exploration 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 KAT Exploration are associated (or correlated) with Advantage Solutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advantage Solutions has no effect on the direction of KAT Exploration i.e., KAT Exploration and Advantage Solutions go up and down completely randomly.

Pair Corralation between KAT Exploration and Advantage Solutions

Given the investment horizon of 90 days KAT Exploration is expected to generate 1.12 times less return on investment than Advantage Solutions. But when comparing it to its historical volatility, KAT Exploration is 1.14 times less risky than Advantage Solutions. It trades about 0.07 of its potential returns per unit of risk. Advantage Solutions is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1.27  in Advantage Solutions on December 28, 2024 and sell it today you would lose (0.06) from holding Advantage Solutions or give up 4.72% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.72%
Values	Daily Returns

KAT Exploration  vs.  Advantage Solutions

KAT Exploration

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in KAT Exploration are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, KAT Exploration showed solid returns over the last few months and may actually be approaching a breakup point.

Advantage Solutions

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Advantage Solutions are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Advantage Solutions showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KAT Exploration and Advantage Solutions

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

The idea behind KAT Exploration and Advantage Solutions 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.