Correlation Between Krispy Kreme and Kroger

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

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

Diversification Opportunities for Krispy Kreme and Kroger

0.2

Correlation Coefficient

Krispy Kreme  Kroger

Modest diversification

The 3 months correlation between Krispy and Kroger is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Krispy Kreme and Kroger Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kroger Company and Krispy Kreme 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 Krispy Kreme are associated (or correlated) with Kroger. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kroger Company has no effect on the direction of Krispy Kreme i.e., Krispy Kreme and Kroger go up and down completely randomly.

Pair Corralation between Krispy Kreme and Kroger

Given the investment horizon of 90 days Krispy Kreme is expected to under-perform the Kroger. In addition to that, Krispy Kreme is 1.39 times more volatile than Kroger Company. It trades about -0.46 of its total potential returns per unit of risk. Kroger Company is currently generating about -0.02 per unit of volatility. If you would invest  5,615  in Kroger Company on February 11, 2024 and sell it today you would lose (25.00) from holding Kroger Company or give up 0.45% of portfolio value over 90 days.

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

Krispy Kreme  vs.  Kroger Company

Krispy Kreme

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Krispy Kreme has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Krispy Kreme is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Kroger Company

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kroger Company are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Kroger reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Krispy Kreme and Kroger

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

The idea behind Krispy Kreme and Kroger Company 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.