Correlation Between Kid ASA and Zalaris ASA

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

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

Diversification Opportunities for Kid ASA and Zalaris ASA

0.88

Correlation Coefficient

Kid ASA  Zalaris ASA

Very poor diversification

The 3 months correlation between Kid and Zalaris is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Kid ASA and Zalaris ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zalaris ASA and Kid ASA 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 Kid ASA are associated (or correlated) with Zalaris ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zalaris ASA has no effect on the direction of Kid ASA i.e., Kid ASA and Zalaris ASA go up and down completely randomly.

Pair Corralation between Kid ASA and Zalaris ASA

Assuming the 90 days trading horizon Kid ASA is expected to generate 0.92 times more return on investment than Zalaris ASA. However, Kid ASA is 1.09 times less risky than Zalaris ASA. It trades about 0.17 of its potential returns per unit of risk. Zalaris ASA is currently generating about 0.13 per unit of risk. If you would invest  7,675  in Kid ASA on March 5, 2024 and sell it today you would earn a total of  7,305  from holding Kid ASA or generate 95.18% return on investment over 90 days.

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

Kid ASA  vs.  Zalaris ASA

Kid ASA

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kid ASA are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting fundamental indicators, Kid ASA disclosed solid returns over the last few months and may actually be approaching a breakup point.

Zalaris ASA

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Zalaris ASA are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Zalaris ASA disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kid ASA and Zalaris ASA

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

The idea behind Kid ASA and Zalaris ASA 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.