Correlation Between KL Technology and Homeritz Bhd

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

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

Diversification Opportunities for KL Technology and Homeritz Bhd

0.64

Correlation Coefficient

KL Technology  Homeritz Bhd

Poor diversification

The 3 months correlation between KLTE and Homeritz is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding KL Technology and Homeritz Bhd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Homeritz Bhd and KL Technology 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 KL Technology are associated (or correlated) with Homeritz Bhd. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Homeritz Bhd has no effect on the direction of KL Technology i.e., KL Technology and Homeritz Bhd go up and down completely randomly.

Pair Corralation between KL Technology and Homeritz Bhd

Assuming the 90 days trading horizon KL Technology is expected to generate 1.03 times less return on investment than Homeritz Bhd. But when comparing it to its historical volatility, KL Technology is 2.06 times less risky than Homeritz Bhd. It trades about 0.14 of its potential returns per unit of risk. Homeritz Bhd is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  53.00  in Homeritz Bhd on September 29, 2024 and sell it today you would earn a total of  5.00  from holding Homeritz Bhd or generate 9.43% return on investment over 90 days.

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

KL Technology  vs.  Homeritz Bhd

Pair Trading with KL Technology and Homeritz Bhd

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

The idea behind KL Technology and Homeritz Bhd 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.

Check out your portfolio center.

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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.