Correlation Between PURA and Kava

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

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

Diversification Opportunities for PURA and Kava

-0.75

Correlation Coefficient

PURA  Kava

Pay attention - limited upside

The 3 months correlation between PURA and Kava is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding PURA and Kava in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kava and PURA 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 PURA are associated (or correlated) with Kava. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kava has no effect on the direction of PURA i.e., PURA and Kava go up and down completely randomly.

Pair Corralation between PURA and Kava

Assuming the 90 days trading horizon PURA is expected to generate 0.75 times more return on investment than Kava. However, PURA is 1.34 times less risky than Kava. It trades about 0.02 of its potential returns per unit of risk. Kava is currently generating about -0.04 per unit of risk. If you would invest  4.13  in PURA on January 17, 2024 and sell it today you would earn a total of  0.07  from holding PURA or generate 1.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	71.98%
Values	Daily Returns

PURA  vs.  Kava

PURA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PURA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, PURA is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Kava

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kava has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Kava is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with PURA and Kava

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

The idea behind PURA and Kava 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.