Correlation Between KNOT Offshore and WT Offshore

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

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

Diversification Opportunities for KNOT Offshore and WT Offshore

0.8

Correlation Coefficient

KNOT Offshore  WT Offshore

Very poor diversification

The 3 months correlation between KNOT and WTI is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding KNOT Offshore Partners and WT Offshore in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WT Offshore and KNOT Offshore 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 KNOT Offshore Partners are associated (or correlated) with WT Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WT Offshore has no effect on the direction of KNOT Offshore i.e., KNOT Offshore and WT Offshore go up and down completely randomly.

Pair Corralation between KNOT Offshore and WT Offshore

Given the investment horizon of 90 days KNOT Offshore Partners is expected to generate 1.14 times more return on investment than WT Offshore. However, KNOT Offshore is 1.14 times more volatile than WT Offshore. It trades about 0.08 of its potential returns per unit of risk. WT Offshore is currently generating about -0.4 per unit of risk. If you would invest  507.00  in KNOT Offshore Partners on February 1, 2024 and sell it today you would earn a total of  19.00  from holding KNOT Offshore Partners or generate 3.75% return on investment over 90 days.

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

KNOT Offshore Partners  vs.  WT Offshore

KNOT Offshore Partners

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KNOT Offshore Partners has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unsteady performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

WT Offshore

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WT Offshore has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in June 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with KNOT Offshore and WT Offshore

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

The idea behind KNOT Offshore Partners and WT Offshore 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.