Correlation Between Disc Medicine and Krispy Kreme

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

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

Diversification Opportunities for Disc Medicine and Krispy Kreme

-0.56

Correlation Coefficient

Disc Medicine  Krispy Kreme

Excellent diversification

The 3 months correlation between Disc and Krispy is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Disc Medicine and Krispy Kreme in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Krispy Kreme and Disc Medicine 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 Disc Medicine are associated (or correlated) with Krispy Kreme. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Krispy Kreme has no effect on the direction of Disc Medicine i.e., Disc Medicine and Krispy Kreme go up and down completely randomly.

Pair Corralation between Disc Medicine and Krispy Kreme

Given the investment horizon of 90 days Disc Medicine is expected to generate 1.71 times more return on investment than Krispy Kreme. However, Disc Medicine is 1.71 times more volatile than Krispy Kreme. It trades about 0.01 of its potential returns per unit of risk. Krispy Kreme is currently generating about 0.01 per unit of risk. If you would invest  4,710  in Disc Medicine on January 24, 2024 and sell it today you would lose (2,012) from holding Disc Medicine or give up 42.72% of portfolio value over 90 days.

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

Disc Medicine  vs.  Krispy Kreme

Disc Medicine

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Disc Medicine has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in May 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Krispy Kreme

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Krispy Kreme are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Krispy Kreme may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Disc Medicine and Krispy Kreme

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

The idea behind Disc Medicine and Krispy Kreme 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.

Check out your portfolio center.

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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.