Correlation Between DSC Investment and KTB Investment

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

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

Diversification Opportunities for DSC Investment and KTB Investment

0.29

Correlation Coefficient

DSC Investment  KTB Investment

Modest diversification

The 3 months correlation between DSC and KTB is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding DSC Investment and KTB Investment Securities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KTB Investment Securities and DSC Investment 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 DSC Investment are associated (or correlated) with KTB Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KTB Investment Securities has no effect on the direction of DSC Investment i.e., DSC Investment and KTB Investment go up and down completely randomly.

Pair Corralation between DSC Investment and KTB Investment

Assuming the 90 days trading horizon DSC Investment is expected to generate 1.36 times more return on investment than KTB Investment. However, DSC Investment is 1.36 times more volatile than KTB Investment Securities. It trades about 0.01 of its potential returns per unit of risk. KTB Investment Securities is currently generating about -0.02 per unit of risk. If you would invest  350,000  in DSC Investment on April 2, 2024 and sell it today you would lose (15,500) from holding DSC Investment or give up 4.43% of portfolio value over 90 days.

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

DSC Investment  vs.  KTB Investment Securities

DSC Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DSC Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in August 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

KTB Investment Securities

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in KTB Investment Securities are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, KTB Investment is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with DSC Investment and KTB Investment

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

The idea behind DSC Investment and KTB Investment Securities 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 CEOs Directory module to screen CEOs from public companies around the world.