Correlation Between Top Material and KB No4

Can any of the company-specific risk be diversified away by investing in both Top Material and KB No4 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 Top Material and KB No4 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Top Material Co and KB No4 SPAC, you can compare the effects of market volatilities on Top Material and KB No4 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 Top Material with a short position of KB No4. Check out your portfolio center. Please also check ongoing floating volatility patterns of Top Material and KB No4.

Diversification Opportunities for Top Material and KB No4

0.71

Correlation Coefficient

Top Material  KB No4

Poor diversification

The 3 months correlation between Top and 205500 is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Top Material Co and KB No4 SPAC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KB No4 SPAC and Top Material 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 Top Material Co are associated (or correlated) with KB No4. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KB No4 SPAC has no effect on the direction of Top Material i.e., Top Material and KB No4 go up and down completely randomly.

Pair Corralation between Top Material and KB No4

Assuming the 90 days trading horizon Top Material Co is expected to under-perform the KB No4. In addition to that, Top Material is 1.59 times more volatile than KB No4 SPAC. It trades about -0.05 of its total potential returns per unit of risk. KB No4 SPAC is currently generating about -0.04 per unit of volatility. If you would invest  156,000  in KB No4 SPAC on September 12, 2024 and sell it today you would lose (54,600) from holding KB No4 SPAC or give up 35.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.69%
Values	Daily Returns

Top Material Co  vs.  KB No4 SPAC

Top Material

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Top Material Co 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 January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

KB No4 SPAC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KB No4 SPAC 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 January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Top Material and KB No4

The main advantage of trading using opposite Top Material and KB No4 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Top Material position performs unexpectedly, KB No4 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 KB No4 will offset losses from the drop in KB No4's long position.

The idea behind Top Material Co and KB No4 SPAC 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.