Correlation Between KL Technology and MClean Technologies

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

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

Diversification Opportunities for KL Technology and MClean Technologies

0.52

Correlation Coefficient

KL Technology  MClean Technologies

Very weak diversification

The 3 months correlation between KLTE and MClean is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding KL Technology and MClean Technologies Bhd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MClean Technologies Bhd and KL Technology 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 KL Technology are associated (or correlated) with MClean Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MClean Technologies Bhd has no effect on the direction of KL Technology i.e., KL Technology and MClean Technologies go up and down completely randomly.

Pair Corralation between KL Technology and MClean Technologies

Assuming the 90 days trading horizon KL Technology is expected to generate 0.37 times more return on investment than MClean Technologies. However, KL Technology is 2.69 times less risky than MClean Technologies. It trades about -0.09 of its potential returns per unit of risk. MClean Technologies Bhd is currently generating about -0.05 per unit of risk. If you would invest  6,378  in KL Technology on September 3, 2024 and sell it today you would lose (530.00) from holding KL Technology or give up 8.31% of portfolio value over 90 days.

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

KL Technology  vs.  MClean Technologies Bhd

Pair Trading with KL Technology and MClean Technologies

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

The idea behind KL Technology and MClean Technologies Bhd 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.