Correlation Between KAT Exploration and Tanke Biosciences

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

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

Diversification Opportunities for KAT Exploration and Tanke Biosciences

0.26

Correlation Coefficient

KAT Exploration  Tanke Biosciences

Modest diversification

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

Pair Corralation between KAT Exploration and Tanke Biosciences

Given the investment horizon of 90 days KAT Exploration is expected to generate 3.65 times less return on investment than Tanke Biosciences. But when comparing it to its historical volatility, KAT Exploration is 1.65 times less risky than Tanke Biosciences. It trades about 0.07 of its potential returns per unit of risk. Tanke Biosciences is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  2.00  in Tanke Biosciences on December 26, 2024 and sell it today you would earn a total of  1.00  from holding Tanke Biosciences or generate 50.0% return on investment over 90 days.

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

KAT Exploration  vs.  Tanke Biosciences

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.

Tanke Biosciences

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tanke Biosciences are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent fundamental drivers, Tanke Biosciences demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KAT Exploration and Tanke Biosciences

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

The idea behind KAT Exploration and Tanke Biosciences 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.