Correlation Between KMD and TOPC

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

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

Diversification Opportunities for KMD and TOPC

0.0

Correlation Coefficient

KMD  TOPC

Pay attention - limited upside

The 3 months correlation between KMD and TOPC is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding KMD and TOPC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TOPC 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 TOPC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TOPC has no effect on the direction of KMD i.e., KMD and TOPC go up and down completely randomly.

Pair Corralation between KMD and TOPC

Assuming the 90 days trading horizon KMD is expected to generate 7.25 times less return on investment than TOPC. But when comparing it to its historical volatility, KMD is 7.61 times less risky than TOPC. It trades about 0.05 of its potential returns per unit of risk. TOPC is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  0.04  in TOPC on January 30, 2024 and sell it today you would lose (0.04) from holding TOPC or give up 95.62% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

KMD  vs.  TOPC

KMD

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in KMD are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, KMD exhibited solid returns over the last few months and may actually be approaching a breakup point.

TOPC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TOPC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, TOPC 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 TOPC

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

The idea behind KMD and TOPC 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..