Correlation Between Nigerian Stock and KL Technology

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

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

Diversification Opportunities for Nigerian Stock and KL Technology

-0.35

Correlation Coefficient

Nigerian Stock  KL Technology

Very good diversification

The 3 months correlation between Nigerian and KLTE is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Nigerian Stock Exchange and KL Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KL Technology and Nigerian Stock 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 Nigerian Stock Exchange are associated (or correlated) with KL Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KL Technology has no effect on the direction of Nigerian Stock i.e., Nigerian Stock and KL Technology go up and down completely randomly.

Pair Corralation between Nigerian Stock and KL Technology

Assuming the 90 days trading horizon Nigerian Stock Exchange is expected to generate 0.23 times more return on investment than KL Technology. However, Nigerian Stock Exchange is 4.33 times less risky than KL Technology. It trades about -0.03 of its potential returns per unit of risk. KL Technology is currently generating about -0.1 per unit of risk. If you would invest  9,917,387  in Nigerian Stock Exchange on September 1, 2024 and sell it today you would lose (166,700) from holding Nigerian Stock Exchange or give up 1.68% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.21%
Values	Daily Returns

Nigerian Stock Exchange  vs.  KL Technology

Pair Trading with Nigerian Stock and KL Technology

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

The idea behind Nigerian Stock Exchange and KL Technology 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..