Correlation Between Kap Industrial and FNB Government

Can any of the company-specific risk be diversified away by investing in both Kap Industrial and FNB Government 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 FNB Government 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 FNB Government Inflation, you can compare the effects of market volatilities on Kap Industrial and FNB Government 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 FNB Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kap Industrial and FNB Government.

Diversification Opportunities for Kap Industrial and FNB Government

0.36

Correlation Coefficient

Kap Industrial  FNB Government

Weak diversification

The 3 months correlation between Kap and FNB is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Kap Industrial Holdings and FNB Government Inflation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FNB Government Inflation 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 FNB Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FNB Government Inflation has no effect on the direction of Kap Industrial i.e., Kap Industrial and FNB Government go up and down completely randomly.

Pair Corralation between Kap Industrial and FNB Government

Assuming the 90 days trading horizon Kap Industrial Holdings is expected to under-perform the FNB Government. In addition to that, Kap Industrial is 8.09 times more volatile than FNB Government Inflation. It trades about -0.02 of its total potential returns per unit of risk. FNB Government Inflation is currently generating about 0.07 per unit of volatility. If you would invest  221,758  in FNB Government Inflation on September 14, 2024 and sell it today you would earn a total of  23,242  from holding FNB Government Inflation or generate 10.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Kap Industrial Holdings  vs.  FNB Government Inflation

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.

FNB Government Inflation

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Kap Industrial and FNB Government

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

The idea behind Kap Industrial Holdings and FNB Government Inflation 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.