Correlation Between KL Technology and Scientex Packaging

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

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

Diversification Opportunities for KL Technology and Scientex Packaging

-0.37

Correlation Coefficient

KL Technology  Scientex Packaging

Very good diversification

The 3 months correlation between KLTE and Scientex is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding KL Technology and Scientex Packaging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scientex Packaging 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 Scientex Packaging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scientex Packaging has no effect on the direction of KL Technology i.e., KL Technology and Scientex Packaging go up and down completely randomly.

Pair Corralation between KL Technology and Scientex Packaging

Assuming the 90 days trading horizon KL Technology is expected to under-perform the Scientex Packaging. In addition to that, KL Technology is 1.51 times more volatile than Scientex Packaging. It trades about -0.08 of its total potential returns per unit of risk. Scientex Packaging is currently generating about -0.07 per unit of volatility. If you would invest  205.00  in Scientex Packaging on September 26, 2024 and sell it today you would lose (19.00) from holding Scientex Packaging or give up 9.27% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.4%
Values	Daily Returns

KL Technology  vs.  Scientex Packaging

Pair Trading with KL Technology and Scientex Packaging

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

The idea behind KL Technology and Scientex Packaging 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.