Correlation Between Lumia and KBSTAR Short

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

By analyzing existing cross correlation between Lumia and KBSTAR Short Term IG, you can compare the effects of market volatilities on Lumia and KBSTAR Short 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 Lumia with a short position of KBSTAR Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lumia and KBSTAR Short.

Diversification Opportunities for Lumia and KBSTAR Short

0.73

Correlation Coefficient

Lumia  KBSTAR Short

Poor diversification

The 3 months correlation between Lumia and KBSTAR is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Lumia and KBSTAR Short Term IG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KBSTAR Short Term and Lumia 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 Lumia are associated (or correlated) with KBSTAR Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KBSTAR Short Term has no effect on the direction of Lumia i.e., Lumia and KBSTAR Short go up and down completely randomly.

Pair Corralation between Lumia and KBSTAR Short

Assuming the 90 days trading horizon Lumia is expected to under-perform the KBSTAR Short. In addition to that, Lumia is 14.02 times more volatile than KBSTAR Short Term IG. It trades about -0.27 of its total potential returns per unit of risk. KBSTAR Short Term IG is currently generating about -0.09 per unit of volatility. If you would invest  1,214,500  in KBSTAR Short Term IG on October 24, 2024 and sell it today you would lose (9,500) from holding KBSTAR Short Term IG or give up 0.78% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

Lumia  vs.  KBSTAR Short Term IG

Lumia

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lumia are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Lumia exhibited solid returns over the last few months and may actually be approaching a breakup point.

KBSTAR Short Term

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in KBSTAR Short Term IG are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, KBSTAR Short is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Lumia and KBSTAR Short

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

The idea behind Lumia and KBSTAR Short Term IG 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.