Correlation Between DATA and KMD

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

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

Diversification Opportunities for DATA and KMD

0.66

Correlation Coefficient

DATA  KMD

Poor diversification

The 3 months correlation between DATA and KMD is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding DATA and KMD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KMD and DATA 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 DATA are associated (or correlated) with KMD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KMD has no effect on the direction of DATA i.e., DATA and KMD go up and down completely randomly.

Pair Corralation between DATA and KMD

Assuming the 90 days trading horizon DATA is expected to under-perform the KMD. But the crypto coin apears to be less risky and, when comparing its historical volatility, DATA is 1.73 times less risky than KMD. The crypto coin trades about -0.18 of its potential returns per unit of risk. The KMD is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  34.00  in KMD on January 20, 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

DATA  vs.  KMD

DATA

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in DATA are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, DATA exhibited solid returns over the last few months and may actually be approaching a breakup point.

KMD

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KMD are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, KMD exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DATA and KMD

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

The idea behind DATA and KMD 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 Transaction History module to view history of all your transactions and understand their impact on performance.