Correlation Between New Generation and KAT Exploration

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Can any of the company-specific risk be diversified away by investing in both New Generation and KAT Exploration 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 New Generation and KAT Exploration into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between New Generation Consumer and KAT Exploration, you can compare the effects of market volatilities on New Generation and KAT Exploration 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 New Generation with a short position of KAT Exploration. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Generation and KAT Exploration.

Diversification Opportunities for New Generation and KAT Exploration

NewKATDiversified AwayNewKATDiversified Away100%
0.41
  Correlation Coefficient

Very weak diversification

The 3 months correlation between New and KAT is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding New Generation Consumer and KAT Exploration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KAT Exploration and New Generation 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 New Generation Consumer are associated (or correlated) with KAT Exploration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KAT Exploration has no effect on the direction of New Generation i.e., New Generation and KAT Exploration go up and down completely randomly.

Pair Corralation between New Generation and KAT Exploration

Given the investment horizon of 90 days New Generation Consumer is expected to generate 0.76 times more return on investment than KAT Exploration. However, New Generation Consumer is 1.32 times less risky than KAT Exploration. It trades about 0.07 of its potential returns per unit of risk. KAT Exploration is currently generating about 0.05 per unit of risk. If you would invest  0.07  in New Generation Consumer on September 18, 2024 and sell it today you would earn a total of  0.00  from holding New Generation Consumer or generate 0.0% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy98.44%
ValuesDaily Returns

New Generation Consumer  vs.  KAT Exploration

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec -40-20020
JavaScript chart by amCharts 3.21.15NGCG KATX
       Timeline  
New Generation Consumer 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in New Generation Consumer are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal fundamental indicators, New Generation reported solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec0.00060.00080.0010.00120.0014
KAT Exploration 

Risk-Adjusted Performance

3 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in KAT Exploration are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, KAT Exploration showed solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec0.00010.000150.00020.000250.00030.000350.00040.000450.0005

New Generation and KAT Exploration Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-49.94-37.4-24.86-12.330.2112.5625.3238.0950.86 0.00090.00100.00110.00120.00130.00140.00150.0016
JavaScript chart by amCharts 3.21.15NGCG KATX
       Returns  

Pair Trading with New Generation and KAT Exploration

The main advantage of trading using opposite New Generation and KAT Exploration positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New Generation position performs unexpectedly, KAT Exploration 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 KAT Exploration will offset losses from the drop in KAT Exploration's long position.
The idea behind New Generation Consumer and KAT Exploration 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.

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