Correlation Between KL Technology and FGV Holdings

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

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

Diversification Opportunities for KL Technology and FGV Holdings

0.09

Correlation Coefficient

KL Technology  FGV Holdings

Significant diversification

The 3 months correlation between KLTE and FGV is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding KL Technology and FGV Holdings Bhd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FGV Holdings 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 FGV Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FGV Holdings Bhd has no effect on the direction of KL Technology i.e., KL Technology and FGV Holdings go up and down completely randomly.

Pair Corralation between KL Technology and FGV Holdings

Assuming the 90 days trading horizon KL Technology is expected to under-perform the FGV Holdings. But the index apears to be less risky and, when comparing its historical volatility, KL Technology is 1.23 times less risky than FGV Holdings. The index trades about -0.08 of its potential returns per unit of risk. The FGV Holdings Bhd is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  128.00  in FGV Holdings Bhd on September 26, 2024 and sell it today you would lose (18.00) from holding FGV Holdings Bhd or give up 14.06% of portfolio value over 90 days.

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

KL Technology  vs.  FGV Holdings Bhd

Pair Trading with KL Technology and FGV Holdings

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

The idea behind KL Technology and FGV Holdings 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.