Can any of the company-specific risk be diversified away by investing in both Kellanova and ConAgra Foods 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 Kellanova and ConAgra Foods into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Kellanova and ConAgra Foods, you can compare the effects of market volatilities on Kellanova and ConAgra Foods 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 Kellanova with a short position of ConAgra Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kellanova and ConAgra Foods.
Diversification Opportunities for Kellanova and ConAgra Foods
The 3 months correlation between Kellanova and ConAgra is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Kellanova and ConAgra Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ConAgra Foods and Kellanova 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 Kellanova are associated (or correlated) with ConAgra Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ConAgra Foods has no effect on the direction of Kellanova i.e., Kellanova and ConAgra Foods go up and down completely randomly.
Pair Corralation between Kellanova and ConAgra Foods
Taking into account the 90-day investment horizon Kellanova is expected to generate 0.92 times more return on investment than ConAgra Foods. However, Kellanova is 1.09 times less risky than ConAgra Foods. It trades about 0.0 of its potential returns per unit of risk. ConAgra Foods is currently generating about 0.0 per unit of risk. If you would invest 5,512 in Kellanova on September 5, 2023 and sell it today you would lose (224.00) from holding Kellanova or give up 4.06% of portfolio value over 90 days.
Over the last 90 days Kellanova has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Kellanova is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.
Over the last 90 days ConAgra Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, ConAgra Foods is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.
The main advantage of trading using opposite Kellanova and ConAgra Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kellanova position performs unexpectedly, ConAgra Foods 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 ConAgra Foods will offset losses from the drop in ConAgra Foods' long position.
The idea behind Kellanova and ConAgra Foods 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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