Correlation Between KL Technology and Budapest

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

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

Diversification Opportunities for KL Technology and Budapest

-0.15

Correlation Coefficient

KL Technology  Budapest

Good diversification

The 3 months correlation between KLTE and Budapest is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding KL Technology and Budapest SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Budapest SE 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 Budapest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Budapest SE has no effect on the direction of KL Technology i.e., KL Technology and Budapest go up and down completely randomly.

Pair Corralation between KL Technology and Budapest

Assuming the 90 days trading horizon KL Technology is expected to under-perform the Budapest. In addition to that, KL Technology is 2.24 times more volatile than Budapest SE. It trades about -0.1 of its total potential returns per unit of risk. Budapest SE is currently generating about 0.12 per unit of volatility. If you would invest  6,945,884  in Budapest SE on September 1, 2024 and sell it today you would earn a total of  847,737  from holding Budapest SE or generate 12.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.21%
Values	Daily Returns

KL Technology  vs.  Budapest SE

Pair Trading with KL Technology and Budapest

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

The idea behind KL Technology and Budapest SE 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.

Check out your portfolio center.

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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .