Correlation Between KraneShares and Vanguard FTSE

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

By analyzing existing cross correlation between KraneShares and Vanguard FTSE Pacific, you can compare the effects of market volatilities on KraneShares and Vanguard FTSE 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 KraneShares with a short position of Vanguard FTSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of KraneShares and Vanguard FTSE.

Diversification Opportunities for KraneShares and Vanguard FTSE

-0.78

Correlation Coefficient

KraneShares  Vanguard FTSE

Pay attention - limited upside

The 3 months correlation between KraneShares and Vanguard is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding KraneShares and Vanguard FTSE Pacific in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard FTSE Pacific and KraneShares 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 KraneShares are associated (or correlated) with Vanguard FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard FTSE Pacific has no effect on the direction of KraneShares i.e., KraneShares and Vanguard FTSE go up and down completely randomly.

Pair Corralation between KraneShares and Vanguard FTSE

Given the investment horizon of 90 days KraneShares is expected to generate 0.13 times more return on investment than Vanguard FTSE. However, KraneShares is 7.44 times less risky than Vanguard FTSE. It trades about 0.11 of its potential returns per unit of risk. Vanguard FTSE Pacific is currently generating about -0.06 per unit of risk. If you would invest  2,802  in KraneShares on August 30, 2024 and sell it today you would earn a total of  8.00  from holding KraneShares or generate 0.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	30.16%
Values	Daily Returns

KraneShares  vs.  Vanguard FTSE Pacific

KraneShares

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days KraneShares has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable forward indicators, KraneShares is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Vanguard FTSE Pacific

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard FTSE Pacific has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Vanguard FTSE is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with KraneShares and Vanguard FTSE

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

The idea behind KraneShares and Vanguard FTSE Pacific 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.