Correlation Between KL Technology and Top Glove

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

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

Diversification Opportunities for KL Technology and Top Glove

0.95

Correlation Coefficient

KL Technology  Top Glove

Almost no diversification

The 3 months correlation between KLTE and Top is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding KL Technology and Top Glove in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Top Glove 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 Top Glove. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Top Glove has no effect on the direction of KL Technology i.e., KL Technology and Top Glove go up and down completely randomly.

Pair Corralation between KL Technology and Top Glove

Assuming the 90 days trading horizon KL Technology is expected to generate 0.62 times more return on investment than Top Glove. However, KL Technology is 1.62 times less risky than Top Glove. It trades about -0.24 of its potential returns per unit of risk. Top Glove is currently generating about -0.29 per unit of risk. If you would invest  6,508  in KL Technology on December 30, 2024 and sell it today you would lose (1,481) from holding KL Technology or give up 22.76% of portfolio value over 90 days.

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

KL Technology  vs.  Top Glove

Pair Trading with KL Technology and Top Glove

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

The idea behind KL Technology and Top Glove 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.