Correlation Between KMH Hitech and DB Insurance

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

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

Diversification Opportunities for KMH Hitech and DB Insurance

0.8

Correlation Coefficient

KMH Hitech  DB Insurance

Very poor diversification

The 3 months correlation between KMH and 005830 is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding KMH Hitech Co and DB Insurance Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DB Insurance and KMH Hitech 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 KMH Hitech Co are associated (or correlated) with DB Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DB Insurance has no effect on the direction of KMH Hitech i.e., KMH Hitech and DB Insurance go up and down completely randomly.

Pair Corralation between KMH Hitech and DB Insurance

Assuming the 90 days trading horizon KMH Hitech Co is expected to under-perform the DB Insurance. But the stock apears to be less risky and, when comparing its historical volatility, KMH Hitech Co is 1.38 times less risky than DB Insurance. The stock trades about -0.14 of its potential returns per unit of risk. The DB Insurance Co is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  11,260,000  in DB Insurance Co on September 13, 2024 and sell it today you would lose (720,000) from holding DB Insurance Co or give up 6.39% of portfolio value over 90 days.

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

KMH Hitech Co  vs.  DB Insurance Co

KMH Hitech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KMH Hitech 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.

DB Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with KMH Hitech and DB Insurance

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

The idea behind KMH Hitech Co and DB Insurance Co 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..