Can any of the company-specific risk be diversified away by investing in both Kingsoft Cloud and Dave 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 Kingsoft Cloud and Dave into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Kingsoft Cloud HoldingsLtd and Dave Inc, you can compare the effects of market volatilities on Kingsoft Cloud and Dave 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 Kingsoft Cloud with a short position of Dave. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kingsoft Cloud and Dave.
Diversification Opportunities for Kingsoft Cloud and Dave
The 3 months correlation between Kingsoft and Dave is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Kingsoft Cloud HoldingsLtd and Dave Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dave Inc and Kingsoft Cloud 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 Kingsoft Cloud HoldingsLtd are associated (or correlated) with Dave. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dave Inc has no effect on the direction of Kingsoft Cloud i.e., Kingsoft Cloud and Dave go up and down completely randomly.
Allowing for the 90-day total investment horizon Kingsoft Cloud HoldingsLtd is expected to under-perform the Dave. But the stock apears to be less risky and, when comparing its historical volatility, Kingsoft Cloud HoldingsLtd is 1.08 times less risky than Dave. The stock trades about -0.07 of its potential returns per unit of risk. The Dave Inc is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 652.00 in Dave Inc on September 9, 2023 and sell it today you would earn a total of 28.00 from holding Dave Inc or generate 4.29% return on investment over 90 days.
Over the last 90 days Kingsoft Cloud HoldingsLtd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in January 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.
Compared to the overall equity markets, risk-adjusted returns on investments in Dave Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Dave may actually be approaching a critical reversion point that can send shares even higher in January 2024.
The main advantage of trading using opposite Kingsoft Cloud and Dave positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kingsoft Cloud position performs unexpectedly, Dave 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 Dave will offset losses from the drop in Dave's long position.
The idea behind Kingsoft Cloud HoldingsLtd and Dave Inc 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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