Correlation Between Ab Small and Knife River

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

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

Diversification Opportunities for Ab Small and Knife River

0.02

Correlation Coefficient

Ab Small  Knife River

Significant diversification

The 3 months correlation between QUAZX and Knife is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Ab Small Cap and Knife River in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Knife River and Ab Small 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 Ab Small Cap are associated (or correlated) with Knife River. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Knife River has no effect on the direction of Ab Small i.e., Ab Small and Knife River go up and down completely randomly.

Pair Corralation between Ab Small and Knife River

Assuming the 90 days horizon Ab Small Cap is expected to generate 0.67 times more return on investment than Knife River. However, Ab Small Cap is 1.49 times less risky than Knife River. It trades about 0.09 of its potential returns per unit of risk. Knife River is currently generating about -0.13 per unit of risk. If you would invest  6,265  in Ab Small Cap on March 19, 2024 and sell it today you would earn a total of  253.00  from holding Ab Small Cap or generate 4.04% return on investment over 90 days.

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

Ab Small Cap  vs.  Knife River

Ab Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ab Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Ab Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Knife River

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Knife River has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Ab Small and Knife River

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

The idea behind Ab Small Cap and Knife River 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.