Correlation Between XMX and KEY

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

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

Diversification Opportunities for XMX and KEY

0.68

Correlation Coefficient

XMX  KEY

Poor diversification

The 3 months correlation between XMX and KEY is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding XMX and KEY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KEY and XMX 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 XMX are associated (or correlated) with KEY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KEY has no effect on the direction of XMX i.e., XMX and KEY go up and down completely randomly.

Pair Corralation between XMX and KEY

Assuming the 90 days trading horizon XMX is expected to generate 8.76 times more return on investment than KEY. However, XMX is 8.76 times more volatile than KEY. It trades about 0.06 of its potential returns per unit of risk. KEY is currently generating about 0.05 per unit of risk. If you would invest  0.00  in XMX on February 7, 2024 and sell it today you would lose  0.00  from holding XMX or give up 44.44% of portfolio value over 90 days.

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

XMX  vs.  KEY

XMX

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in XMX are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, XMX exhibited solid returns over the last few months and may actually be approaching a breakup point.

KEY

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with XMX and KEY

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

The idea behind XMX and KEY 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.