Correlation Between National Refinery and K Electric

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

By analyzing existing cross correlation between National Refinery and K Electric, you can compare the effects of market volatilities on National Refinery and K Electric 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 National Refinery with a short position of K Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Refinery and K Electric.

Diversification Opportunities for National Refinery and K Electric

0.8

Correlation Coefficient

National Refinery  K Electric

Very poor diversification

The 3 months correlation between National and KEL is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding National Refinery and K Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on K Electric and National Refinery 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 National Refinery are associated (or correlated) with K Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of K Electric has no effect on the direction of National Refinery i.e., National Refinery and K Electric go up and down completely randomly.

Pair Corralation between National Refinery and K Electric

Assuming the 90 days trading horizon National Refinery is expected to generate 2.43 times less return on investment than K Electric. But when comparing it to its historical volatility, National Refinery is 1.45 times less risky than K Electric. It trades about 0.09 of its potential returns per unit of risk. K Electric is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  418.00  in K Electric on September 3, 2024 and sell it today you would earn a total of  160.00  from holding K Electric or generate 38.28% return on investment over 90 days.

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

National Refinery  vs.  K Electric

National Refinery

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in National Refinery are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, National Refinery reported solid returns over the last few months and may actually be approaching a breakup point.

K Electric

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in K Electric are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, K Electric reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Refinery and K Electric

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

The idea behind National Refinery and K Electric 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.