Correlation Between KEY and EM

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

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

Diversification Opportunities for KEY and EM

0.0

Correlation Coefficient

KEY  EM

Pay attention - limited upside

The 3 months correlation between KEY and EM is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding KEY and EM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EM 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 EM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EM has no effect on the direction of KEY i.e., KEY and EM go up and down completely randomly.

Pair Corralation between KEY and EM

Assuming the 90 days trading horizon KEY is expected to under-perform the EM. But the crypto coin apears to be less risky and, when comparing its historical volatility, KEY is 1.36 times less risky than EM. The crypto coin trades about -0.12 of its potential returns per unit of risk. The EM is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  0.04  in EM on September 1, 2024 and sell it today you would lose (0.03) from holding EM or give up 78.02% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

KEY  vs.  EM

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.

EM

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with KEY and EM

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

The idea behind KEY and EM 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.