Correlation Between Shrapnel and Kava

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

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

Diversification Opportunities for Shrapnel and Kava

0.26

Correlation Coefficient

Shrapnel  Kava

Modest diversification

The 3 months correlation between Shrapnel and Kava is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Shrapnel and Kava in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kava and Shrapnel 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 Shrapnel 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 Shrapnel i.e., Shrapnel and Kava go up and down completely randomly.

Pair Corralation between Shrapnel and Kava

Assuming the 90 days trading horizon Shrapnel is expected to generate 17.29 times more return on investment than Kava. However, Shrapnel is 17.29 times more volatile than Kava. It trades about 0.07 of its potential returns per unit of risk. Kava is currently generating about -0.01 per unit of risk. If you would invest  0.00  in Shrapnel on February 7, 2024 and sell it today you would earn a total of  14.00  from holding Shrapnel or generate 9.223372036854776E16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Shrapnel  vs.  Kava

Shrapnel

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shrapnel are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Shrapnel exhibited solid returns over the last few months and may actually be approaching a breakup point.

Kava

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Kava are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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 Shrapnel and Kava

The main advantage of trading using opposite Shrapnel and Kava positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shrapnel 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 Shrapnel 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.