Correlation Between KraneShares European and KraneShares California

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

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

Diversification Opportunities for KraneShares European and KraneShares California

-0.65

Correlation Coefficient

KraneShares European  KraneShares California

Excellent diversification

The 3 months correlation between KraneShares and KraneShares is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding KraneShares European Carbon and KraneShares California Carbon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KraneShares California and KraneShares European 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 KraneShares European Carbon are associated (or correlated) with KraneShares California. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KraneShares California has no effect on the direction of KraneShares European i.e., KraneShares European and KraneShares California go up and down completely randomly.

Pair Corralation between KraneShares European and KraneShares California

Given the investment horizon of 90 days KraneShares European Carbon is expected to generate 1.08 times more return on investment than KraneShares California. However, KraneShares European is 1.08 times more volatile than KraneShares California Carbon. It trades about 0.06 of its potential returns per unit of risk. KraneShares California Carbon is currently generating about -0.09 per unit of risk. If you would invest  2,070  in KraneShares European Carbon on December 25, 2024 and sell it today you would earn a total of  138.00  from holding KraneShares European Carbon or generate 6.67% return on investment over 90 days.

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

KraneShares European Carbon  vs.  KraneShares California Carbon

KraneShares European

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in KraneShares European Carbon are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, KraneShares European may actually be approaching a critical reversion point that can send shares even higher in April 2025.

KraneShares California

Risk-Adjusted Performance

Very Weak

Over the last 90 days KraneShares California Carbon has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Etf's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Pair Trading with KraneShares European and KraneShares California

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

The idea behind KraneShares European Carbon and KraneShares California Carbon 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.