Correlation Between KEY and DENT

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

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

Diversification Opportunities for KEY and DENT

-0.59

Correlation Coefficient

KEY  DENT

Excellent diversification

The 3 months correlation between KEY and DENT is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding KEY and DENT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DENT 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 DENT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DENT has no effect on the direction of KEY i.e., KEY and DENT go up and down completely randomly.

Pair Corralation between KEY and DENT

Assuming the 90 days trading horizon KEY is expected to under-perform the DENT. In addition to that, KEY is 1.42 times more volatile than DENT. It trades about -0.14 of its total potential returns per unit of risk. DENT is currently generating about 0.23 per unit of volatility. If you would invest  0.07  in DENT on September 1, 2024 and sell it today you would earn a total of  0.07  from holding DENT or generate 91.85% return on investment over 90 days.

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

KEY  vs.  DENT

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.

DENT

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in DENT are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, DENT exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KEY and DENT

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

The idea behind KEY and DENT 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.