Correlation Between Rich Development and Kenmec Mechanical

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

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

Diversification Opportunities for Rich Development and Kenmec Mechanical

0.64

Correlation Coefficient

Rich Development  Kenmec Mechanical

Poor diversification

The 3 months correlation between Rich and Kenmec is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Rich Development Co and Kenmec Mechanical Engineering in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kenmec Mechanical and Rich Development 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 Rich Development Co are associated (or correlated) with Kenmec Mechanical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kenmec Mechanical has no effect on the direction of Rich Development i.e., Rich Development and Kenmec Mechanical go up and down completely randomly.

Pair Corralation between Rich Development and Kenmec Mechanical

Assuming the 90 days trading horizon Rich Development Co is expected to generate 1.18 times more return on investment than Kenmec Mechanical. However, Rich Development is 1.18 times more volatile than Kenmec Mechanical Engineering. It trades about 0.28 of its potential returns per unit of risk. Kenmec Mechanical Engineering is currently generating about 0.1 per unit of risk. If you would invest  1,060  in Rich Development Co on February 7, 2024 and sell it today you would earn a total of  300.00  from holding Rich Development Co or generate 28.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

Rich Development Co  vs.  Kenmec Mechanical Engineering

Rich Development

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rich Development Co are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Rich Development showed solid returns over the last few months and may actually be approaching a breakup point.

Kenmec Mechanical

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kenmec Mechanical Engineering are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Kenmec Mechanical showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rich Development and Kenmec Mechanical

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

The idea behind Rich Development Co and Kenmec Mechanical Engineering 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.