Correlation Between KL Technology and Pentamaster Bhd

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

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

Diversification Opportunities for KL Technology and Pentamaster Bhd

0.85

Correlation Coefficient

KL Technology  Pentamaster Bhd

Very poor diversification

The 3 months correlation between KLTE and Pentamaster is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding KL Technology and Pentamaster Bhd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pentamaster 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 Pentamaster Bhd. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pentamaster Bhd has no effect on the direction of KL Technology i.e., KL Technology and Pentamaster Bhd go up and down completely randomly.

Pair Corralation between KL Technology and Pentamaster Bhd

Assuming the 90 days trading horizon KL Technology is expected to generate 0.55 times more return on investment than Pentamaster Bhd. However, KL Technology is 1.81 times less risky than Pentamaster Bhd. It trades about 0.01 of its potential returns per unit of risk. Pentamaster Bhd is currently generating about -0.02 per unit of risk. If you would invest  6,381  in KL Technology on September 28, 2024 and sell it today you would earn a total of  110.00  from holding KL Technology or generate 1.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.69%
Values	Daily Returns

KL Technology  vs.  Pentamaster Bhd

Pair Trading with KL Technology and Pentamaster Bhd

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

The idea behind KL Technology and Pentamaster 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.