Correlation Between Kennametal and Eastern

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

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

Diversification Opportunities for Kennametal and Eastern

-0.45

Correlation Coefficient

Kennametal  Eastern

Very good diversification

The 3 months correlation between Kennametal and Eastern is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Kennametal and Eastern Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastern and Kennametal 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 Kennametal are associated (or correlated) with Eastern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastern has no effect on the direction of Kennametal i.e., Kennametal and Eastern go up and down completely randomly.

Pair Corralation between Kennametal and Eastern

Considering the 90-day investment horizon Kennametal is expected to generate 0.56 times more return on investment than Eastern. However, Kennametal is 1.77 times less risky than Eastern. It trades about -0.04 of its potential returns per unit of risk. Eastern Co is currently generating about -0.07 per unit of risk. If you would invest  2,438  in Kennametal on January 31, 2024 and sell it today you would lose (33.00) from holding Kennametal or give up 1.35% of portfolio value over 90 days.

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

Kennametal  vs.  Eastern Co

Kennametal

Risk-Adjusted Performance

0 of 100

Very Weak

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

Eastern

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Eastern Co are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite weak primary indicators, Eastern disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kennametal and Eastern

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

The idea behind Kennametal and Eastern Co 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.