Correlation Between Koninklijke KPN and Airtel Africa

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

By analyzing existing cross correlation between Koninklijke KPN NV and Airtel Africa Plc, you can compare the effects of market volatilities on Koninklijke KPN and Airtel Africa 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 Koninklijke KPN with a short position of Airtel Africa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Koninklijke KPN and Airtel Africa.

Diversification Opportunities for Koninklijke KPN and Airtel Africa

0.56

Correlation Coefficient

Koninklijke KPN  Airtel Africa

Very weak diversification

The 3 months correlation between Koninklijke and Airtel is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Koninklijke KPN NV and Airtel Africa Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Airtel Africa Plc and Koninklijke KPN 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 Koninklijke KPN NV are associated (or correlated) with Airtel Africa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Airtel Africa Plc has no effect on the direction of Koninklijke KPN i.e., Koninklijke KPN and Airtel Africa go up and down completely randomly.

Pair Corralation between Koninklijke KPN and Airtel Africa

Assuming the 90 days horizon Koninklijke KPN NV is expected to generate 0.53 times more return on investment than Airtel Africa. However, Koninklijke KPN NV is 1.88 times less risky than Airtel Africa. It trades about -0.04 of its potential returns per unit of risk. Airtel Africa Plc is currently generating about -0.03 per unit of risk. If you would invest  414.00  in Koninklijke KPN NV on September 5, 2024 and sell it today you would lose (27.00) from holding Koninklijke KPN NV or give up 6.52% of portfolio value over 90 days.

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

Koninklijke KPN NV  vs.  Airtel Africa Plc

Koninklijke KPN NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Koninklijke KPN NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Koninklijke KPN is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Airtel Africa Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Airtel Africa Plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Koninklijke KPN and Airtel Africa

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

The idea behind Koninklijke KPN NV and Airtel Africa Plc 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.