Correlation Between KMD and MCO

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Can any of the company-specific risk be diversified away by investing in both KMD and MCO 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 MCO into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between KMD and MCO, you can compare the effects of market volatilities on KMD and MCO 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 MCO. Check out your portfolio center. Please also check ongoing floating volatility patterns of KMD and MCO.

Diversification Opportunities for KMD and MCO

-0.17
  Correlation Coefficient
 KMD
 MCO

Good diversification

The 3 months correlation between KMD and MCO is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding KMD and MCO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MCO 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 MCO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MCO has no effect on the direction of KMD i.e., KMD and MCO go up and down completely randomly.

Pair Corralation between KMD and MCO

Assuming the 90 days trading horizon KMD is expected to generate 39.51 times less return on investment than MCO. But when comparing it to its historical volatility, KMD is 37.26 times less risky than MCO. It trades about 0.2 of its potential returns per unit of risk. MCO is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  85.00  in MCO on December 30, 2023 and sell it today you would earn a total of  1,240  from holding MCO or generate 1458.82% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

KMD  vs.  MCO

 Performance 
       Timeline  
KMD 

Risk-Adjusted Performance

12 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in KMD are ranked lower than 12 (%) 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.
MCO 

Risk-Adjusted Performance

8 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in MCO are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, MCO exhibited solid returns over the last few months and may actually be approaching a breakup point.

KMD and MCO Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with KMD and MCO

The main advantage of trading using opposite KMD and MCO positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KMD position performs unexpectedly, MCO 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 MCO will offset losses from the drop in MCO's long position.
The idea behind KMD and MCO 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.

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