Correlation Between KAT Exploration and Invesco Treasury

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

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

Diversification Opportunities for KAT Exploration and Invesco Treasury

-0.69

Correlation Coefficient

KAT Exploration  Invesco Treasury

Excellent diversification

The 3 months correlation between KAT and Invesco is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding KAT Exploration and Invesco Treasury Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Treasury Bond 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 Invesco Treasury. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Treasury Bond has no effect on the direction of KAT Exploration i.e., KAT Exploration and Invesco Treasury go up and down completely randomly.

Pair Corralation between KAT Exploration and Invesco Treasury

Given the investment horizon of 90 days KAT Exploration is expected to generate 1.94 times more return on investment than Invesco Treasury. However, KAT Exploration is 1.94 times more volatile than Invesco Treasury Bond. It trades about 0.08 of its potential returns per unit of risk. Invesco Treasury Bond is currently generating about 0.07 per unit of risk. If you would invest  0.14  in KAT Exploration on December 4, 2024 and sell it today you would lose (0.10) from holding KAT Exploration or give up 71.43% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	92.08%
Values	Daily Returns

KAT Exploration  vs.  Invesco Treasury Bond

KAT Exploration

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in KAT Exploration are ranked lower than 8 (%) 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.

Invesco Treasury Bond

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco Treasury Bond has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Invesco Treasury is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with KAT Exploration and Invesco Treasury

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

The idea behind KAT Exploration and Invesco Treasury Bond 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.