Correlation Between KRAKATAU STEEL and CDN IMPERIAL

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

By analyzing existing cross correlation between KRAKATAU STEEL B and CDN IMPERIAL BANK, you can compare the effects of market volatilities on KRAKATAU STEEL and CDN IMPERIAL 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 KRAKATAU STEEL with a short position of CDN IMPERIAL. Check out your portfolio center. Please also check ongoing floating volatility patterns of KRAKATAU STEEL and CDN IMPERIAL.

Diversification Opportunities for KRAKATAU STEEL and CDN IMPERIAL

0.71

Correlation Coefficient

KRAKATAU STEEL  CDN IMPERIAL

Poor diversification

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

Pair Corralation between KRAKATAU STEEL and CDN IMPERIAL

Assuming the 90 days trading horizon KRAKATAU STEEL B is expected to generate 5.38 times more return on investment than CDN IMPERIAL. However, KRAKATAU STEEL is 5.38 times more volatile than CDN IMPERIAL BANK. It trades about 0.15 of its potential returns per unit of risk. CDN IMPERIAL BANK is currently generating about 0.27 per unit of risk. If you would invest  0.40  in KRAKATAU STEEL B on September 12, 2024 and sell it today you would earn a total of  0.20  from holding KRAKATAU STEEL B or generate 50.0% return on investment over 90 days.

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

KRAKATAU STEEL B   vs.  CDN IMPERIAL BANK

KRAKATAU STEEL B

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in KRAKATAU STEEL B are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward-looking signals, KRAKATAU STEEL unveiled solid returns over the last few months and may actually be approaching a breakup point.

CDN IMPERIAL BANK

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CDN IMPERIAL BANK are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile forward indicators, CDN IMPERIAL unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KRAKATAU STEEL and CDN IMPERIAL

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

The idea behind KRAKATAU STEEL B and CDN IMPERIAL BANK 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.