Correlation Between KMD and OKB
Can any of the company-specific risk be diversified away by investing in both KMD and OKB 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 OKB into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between KMD and OKB, you can compare the effects of market volatilities on KMD and OKB 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 OKB. Check out your portfolio center. Please also check ongoing floating volatility patterns of KMD and OKB.
Diversification Opportunities for KMD and OKB
Poor diversification
The 3 months correlation between KMD and OKB is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding KMD and OKB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OKB 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 OKB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OKB has no effect on the direction of KMD i.e., KMD and OKB go up and down completely randomly.
Pair Corralation between KMD and OKB
Assuming the 90 days trading horizon KMD is expected to generate 2.57 times more return on investment than OKB. However, KMD is 2.57 times more volatile than OKB. It trades about 0.1 of its potential returns per unit of risk. OKB is currently generating about -0.06 per unit of risk. If you would invest 34.00 in KMD on January 19, 2024 and sell it today you would earn a total of 5.00 from holding KMD or generate 14.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
KMD vs. OKB
Performance |
| Timeline |
| KMD |
| OKB |
KMD and OKB Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with KMD and OKB
The main advantage of trading using opposite KMD and OKB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KMD position performs unexpectedly, OKB 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 OKB will offset losses from the drop in OKB's long position.The idea behind KMD and OKB 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 Global Correlations module to find global opportunities by holding instruments from different markets.
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