Correlation Between Austrian Traded and KL Technology

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

By analyzing existing cross correlation between Austrian Traded Index and KL Technology, you can compare the effects of market volatilities on Austrian Traded and KL Technology 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 Austrian Traded with a short position of KL Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Austrian Traded and KL Technology.

Diversification Opportunities for Austrian Traded and KL Technology

0.3

Correlation Coefficient

Austrian Traded  KL Technology

Weak diversification

The 3 months correlation between Austrian and KLTE is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Austrian Traded Index and KL Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KL Technology and Austrian Traded 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 Austrian Traded Index are associated (or correlated) with KL Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KL Technology has no effect on the direction of Austrian Traded i.e., Austrian Traded and KL Technology go up and down completely randomly.

Pair Corralation between Austrian Traded and KL Technology

Assuming the 90 days trading horizon Austrian Traded Index is expected to generate 0.58 times more return on investment than KL Technology. However, Austrian Traded Index is 1.72 times less risky than KL Technology. It trades about -0.09 of its potential returns per unit of risk. KL Technology is currently generating about -0.1 per unit of risk. If you would invest  373,589  in Austrian Traded Index on September 1, 2024 and sell it today you would lose (19,661) from holding Austrian Traded Index or give up 5.26% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.92%
Values	Daily Returns

Austrian Traded Index  vs.  KL Technology

Pair Trading with Austrian Traded and KL Technology

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

The idea behind Austrian Traded Index and KL Technology 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.