Correlation Between Encore Wire and Kimball Electronics

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

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

Diversification Opportunities for Encore Wire and Kimball Electronics

-0.48

Correlation Coefficient

Encore Wire  Kimball Electronics

Very good diversification

The 3 months correlation between Encore and Kimball is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Encore Wire and Kimball Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kimball Electronics and Encore Wire 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 Encore Wire are associated (or correlated) with Kimball Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kimball Electronics has no effect on the direction of Encore Wire i.e., Encore Wire and Kimball Electronics go up and down completely randomly.

Pair Corralation between Encore Wire and Kimball Electronics

Given the investment horizon of 90 days Encore Wire is expected to generate 2.12 times more return on investment than Kimball Electronics. However, Encore Wire is 2.12 times more volatile than Kimball Electronics. It trades about 0.29 of its potential returns per unit of risk. Kimball Electronics is currently generating about -0.02 per unit of risk. If you would invest  23,733  in Encore Wire on January 20, 2024 and sell it today you would earn a total of  4,707  from holding Encore Wire or generate 19.83% return on investment over 90 days.

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

Encore Wire  vs.  Kimball Electronics

Encore Wire

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Encore Wire are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Encore Wire exhibited solid returns over the last few months and may actually be approaching a breakup point.

Kimball Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kimball Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in May 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Encore Wire and Kimball Electronics

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

The idea behind Encore Wire and Kimball Electronics 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.