Correlation Between Key Tronic and BIO Key

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

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

Diversification Opportunities for Key Tronic and BIO Key

0.54

Correlation Coefficient

Key Tronic  BIO Key

Very weak diversification

The 3 months correlation between Key and BIO is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Key Tronic and BIO Key International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BIO Key International and Key Tronic 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 Key Tronic are associated (or correlated) with BIO Key. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BIO Key International has no effect on the direction of Key Tronic i.e., Key Tronic and BIO Key go up and down completely randomly.

Pair Corralation between Key Tronic and BIO Key

Given the investment horizon of 90 days Key Tronic is expected to under-perform the BIO Key. But the stock apears to be less risky and, when comparing its historical volatility, Key Tronic is 2.36 times less risky than BIO Key. The stock trades about -0.17 of its potential returns per unit of risk. The BIO Key International is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  181.00  in BIO Key International on February 5, 2024 and sell it today you would lose (11.00) from holding BIO Key International or give up 6.08% of portfolio value over 90 days.

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

Key Tronic  vs.  BIO Key International

Key Tronic

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Key Tronic are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Key Tronic is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

BIO Key International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BIO Key International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, BIO Key is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Key Tronic and BIO Key

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

The idea behind Key Tronic and BIO Key International 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..