Correlation Between QKC and CMT

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

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

Diversification Opportunities for QKC and CMT

0.89

Correlation Coefficient

QKC  CMT

Very poor diversification

The 3 months correlation between QKC and CMT is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding QKC and CMT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMT and QKC 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 QKC are associated (or correlated) with CMT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CMT has no effect on the direction of QKC i.e., QKC and CMT go up and down completely randomly.

Pair Corralation between QKC and CMT

Assuming the 90 days trading horizon QKC is expected to generate 3.15 times less return on investment than CMT. But when comparing it to its historical volatility, QKC is 1.83 times less risky than CMT. It trades about 0.03 of its potential returns per unit of risk. CMT is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  0.36  in CMT on February 7, 2024 and sell it today you would earn a total of  0.15  from holding CMT or generate 40.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	84.63%
Values	Daily Returns

QKC  vs.  CMT

QKC

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in QKC are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, QKC exhibited solid returns over the last few months and may actually be approaching a breakup point.

CMT

Risk-Adjusted Performance

12 of 100

Good

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

Pair Trading with QKC and CMT

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

The idea behind QKC and CMT 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.