Correlation Between Kap Industrial and African Rainbow

Can any of the company-specific risk be diversified away by investing in both Kap Industrial and African Rainbow 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 Kap Industrial and African Rainbow into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Kap Industrial Holdings and African Rainbow Capital, you can compare the effects of market volatilities on Kap Industrial and African Rainbow 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 Kap Industrial with a short position of African Rainbow. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kap Industrial and African Rainbow.

Diversification Opportunities for Kap Industrial and African Rainbow

-0.57

Correlation Coefficient

Kap Industrial  African Rainbow

Excellent diversification

The 3 months correlation between Kap and African is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Kap Industrial Holdings and African Rainbow Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on African Rainbow Capital and Kap Industrial 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 Kap Industrial Holdings are associated (or correlated) with African Rainbow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of African Rainbow Capital has no effect on the direction of Kap Industrial i.e., Kap Industrial and African Rainbow go up and down completely randomly.

Pair Corralation between Kap Industrial and African Rainbow

Assuming the 90 days trading horizon Kap Industrial Holdings is expected to under-perform the African Rainbow. In addition to that, Kap Industrial is 1.01 times more volatile than African Rainbow Capital. It trades about -0.04 of its total potential returns per unit of risk. African Rainbow Capital is currently generating about 0.04 per unit of volatility. If you would invest  72,700  in African Rainbow Capital on September 16, 2024 and sell it today you would earn a total of  2,300  from holding African Rainbow Capital or generate 3.16% return on investment over 90 days.

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

Kap Industrial Holdings  vs.  African Rainbow Capital

Kap Industrial Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kap Industrial Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Kap Industrial is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

African Rainbow Capital

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in African Rainbow Capital are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, African Rainbow is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Kap Industrial and African Rainbow

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

The idea behind Kap Industrial Holdings and African Rainbow Capital 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.