Correlation Between Kava and SNM

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

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

Diversification Opportunities for Kava and SNM

0.09

Correlation Coefficient

Kava  SNM

Significant diversification

The 3 months correlation between Kava and SNM is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Kava and SNM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SNM and Kava 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 Kava are associated (or correlated) with SNM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SNM has no effect on the direction of Kava i.e., Kava and SNM go up and down completely randomly.

Pair Corralation between Kava and SNM

Assuming the 90 days trading horizon Kava is expected to under-perform the SNM. In addition to that, Kava is 1.65 times more volatile than SNM. It trades about -0.18 of its total potential returns per unit of risk. SNM is currently generating about -0.15 per unit of volatility. If you would invest  0.36  in SNM on January 26, 2024 and sell it today you would lose (0.05) from holding SNM or give up 13.48% of portfolio value over 90 days.

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

Kava  vs.  SNM

Kava

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Kava are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Kava may actually be approaching a critical reversion point that can send shares even higher in May 2024.

SNM

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SNM are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady primary indicators, SNM exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kava and SNM

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

The idea behind Kava and SNM 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.