Correlation Between KMD and QKC

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

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

Diversification Opportunities for KMD and QKC

0.75

Correlation Coefficient

KMD  QKC

Poor diversification

The 3 months correlation between KMD and QKC is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding KMD and QKC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on QKC and KMD 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 KMD are associated (or correlated) with QKC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of QKC has no effect on the direction of KMD i.e., KMD and QKC go up and down completely randomly.

Pair Corralation between KMD and QKC

Assuming the 90 days trading horizon KMD is expected to generate 1.01 times less return on investment than QKC. In addition to that, KMD is 1.13 times more volatile than QKC. It trades about 0.09 of its total potential returns per unit of risk. QKC is currently generating about 0.11 per unit of volatility. If you would invest  0.87  in QKC on August 23, 2024 and sell it today you would earn a total of  0.08  from holding QKC or generate 9.2% return on investment over 90 days.

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

KMD  vs.  QKC

KMD

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KMD has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, KMD is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

QKC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days QKC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, QKC is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with KMD and QKC

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

The idea behind KMD and QKC 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 CEOs Directory module to screen CEOs from public companies around the world.