Correlation Between Kratos Defense and Park Electrochemical

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

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

Diversification Opportunities for Kratos Defense and Park Electrochemical

-0.69

Correlation Coefficient

Kratos Defense  Park Electrochemical

Excellent diversification

The 3 months correlation between Kratos and Park is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Kratos Defense Security and Park Electrochemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Park Electrochemical and Kratos Defense 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 Kratos Defense Security are associated (or correlated) with Park Electrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Park Electrochemical has no effect on the direction of Kratos Defense i.e., Kratos Defense and Park Electrochemical go up and down completely randomly.

Pair Corralation between Kratos Defense and Park Electrochemical

Given the investment horizon of 90 days Kratos Defense Security is expected to under-perform the Park Electrochemical. But the stock apears to be less risky and, when comparing its historical volatility, Kratos Defense Security is 1.19 times less risky than Park Electrochemical. The stock trades about -0.37 of its potential returns per unit of risk. The Park Electrochemical is currently generating about -0.29 of returns per unit of risk over similar time horizon. If you would invest  1,447  in Park Electrochemical on March 20, 2024 and sell it today you would lose (121.00) from holding Park Electrochemical or give up 8.36% of portfolio value over 90 days.

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

Kratos Defense Security  vs.  Park Electrochemical

Kratos Defense Security

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kratos Defense Security are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, Kratos Defense unveiled solid returns over the last few months and may actually be approaching a breakup point.

Park Electrochemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Park Electrochemical 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 forward-looking signals remain rather sound which may send shares a bit higher in July 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Kratos Defense and Park Electrochemical

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

The idea behind Kratos Defense Security and Park Electrochemical 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.