Correlation Between Daou Tech and KTB Investment

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

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

Diversification Opportunities for Daou Tech and KTB Investment

0.39

Correlation Coefficient

Daou Tech  KTB Investment

Weak diversification

The 3 months correlation between Daou and KTB is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Daou Tech 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 Daou Tech 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 Daou Tech 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 Daou Tech i.e., Daou Tech and KTB Investment go up and down completely randomly.

Pair Corralation between Daou Tech and KTB Investment

Assuming the 90 days trading horizon Daou Tech is expected to under-perform the KTB Investment. But the stock apears to be less risky and, when comparing its historical volatility, Daou Tech is 1.77 times less risky than KTB Investment. The stock trades about -0.05 of its potential returns per unit of risk. The KTB Investment Securities is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  302,000  in KTB Investment Securities on September 27, 2024 and sell it today you would earn a total of  24,500  from holding KTB Investment Securities or generate 8.11% return on investment over 90 days.

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

Daou Tech  vs.  KTB Investment Securities

Daou Tech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Daou Tech has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Daou Tech is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

KTB Investment Securities

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in KTB Investment Securities are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, KTB Investment may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Daou Tech and KTB Investment

The main advantage of trading using opposite Daou Tech and KTB Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Daou Tech 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 Daou Tech 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.

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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.