Correlation Between KMD and AION
Can any of the company-specific risk be diversified away by investing in both KMD and AION 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 KMD and AION into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between KMD and AION, you can compare the effects of market volatilities on KMD and AION 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 KMD with a short position of AION. Check out your portfolio center. Please also check ongoing floating volatility patterns of KMD and AION.
Diversification Opportunities for KMD and AION
Very weak diversification
The 3 months correlation between KMD and AION is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding KMD and AION in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AION and KMD 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 KMD are associated (or correlated) with AION. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AION has no effect on the direction of KMD i.e., KMD and AION go up and down completely randomly.
Pair Corralation between KMD and AION
Assuming the 90 days trading horizon KMD is expected to generate 98.23 times less return on investment than AION. But when comparing it to its historical volatility, KMD is 21.33 times less risky than AION. It trades about 0.04 of its potential returns per unit of risk. AION is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 6.64 in AION on January 26, 2024 and sell it today you would lose (6.11) from holding AION or give up 92.0% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
KMD vs. AION
Performance |
| Timeline |
| KMD |
| AION |
KMD and AION Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with KMD and AION
The main advantage of trading using opposite KMD and AION positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KMD position performs unexpectedly, AION 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 AION will offset losses from the drop in AION's long position.The idea behind KMD and AION 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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