Correlation Between KEY and DATA

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

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

Diversification Opportunities for KEY and DATA

0.37

Correlation Coefficient

KEY  DATA

Weak diversification

The 3 months correlation between KEY and DATA is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding KEY and DATA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DATA and KEY 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 KEY are associated (or correlated) with DATA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DATA has no effect on the direction of KEY i.e., KEY and DATA go up and down completely randomly.

Pair Corralation between KEY and DATA

Assuming the 90 days trading horizon KEY is expected to under-perform the DATA. In addition to that, KEY is 1.7 times more volatile than DATA. It trades about -0.21 of its total potential returns per unit of risk. DATA is currently generating about 0.27 per unit of volatility. If you would invest  3.56  in DATA on August 30, 2024 and sell it today you would earn a total of  0.98  from holding DATA or generate 27.53% return on investment over 90 days.

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

KEY  vs.  DATA

KEY

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KEY 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 Crypto's basic indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for KEY shareholders.

DATA

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DATA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, DATA exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KEY and DATA

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

The idea behind KEY and DATA 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.