Correlation Between Harmony and Kadena

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

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

Diversification Opportunities for Harmony and Kadena

0.98

Correlation Coefficient

Harmony  Kadena

Almost no diversification

The 3 months correlation between Harmony and Kadena is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Harmony and Kadena in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kadena and Harmony 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 Harmony are associated (or correlated) with Kadena. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kadena has no effect on the direction of Harmony i.e., Harmony and Kadena go up and down completely randomly.

Pair Corralation between Harmony and Kadena

Assuming the 90 days trading horizon Harmony is expected to generate 0.88 times more return on investment than Kadena. However, Harmony is 1.14 times less risky than Kadena. It trades about 0.27 of its potential returns per unit of risk. Kadena is currently generating about 0.23 per unit of risk. If you would invest  1.08  in Harmony on September 1, 2024 and sell it today you would earn a total of  1.77  from holding Harmony or generate 163.89% return on investment over 90 days.

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

Harmony  vs.  Kadena

Harmony

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Harmony are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Harmony exhibited solid returns over the last few months and may actually be approaching a breakup point.

Kadena

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Kadena are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Kadena exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Harmony and Kadena

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

The idea behind Harmony and Kadena 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 Global Correlations module to find global opportunities by holding instruments from different markets.