Correlation Between Company K and FnGuide

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

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

Diversification Opportunities for Company K and FnGuide

0.28

Correlation Coefficient

Company K  FnGuide

Modest diversification

The 3 months correlation between Company and FnGuide is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Company K Partners and FnGuide in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FnGuide and Company K 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 Company K Partners are associated (or correlated) with FnGuide. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FnGuide has no effect on the direction of Company K i.e., Company K and FnGuide go up and down completely randomly.

Pair Corralation between Company K and FnGuide

Assuming the 90 days trading horizon Company K Partners is expected to under-perform the FnGuide. In addition to that, Company K is 1.01 times more volatile than FnGuide. It trades about -0.03 of its total potential returns per unit of risk. FnGuide is currently generating about 0.01 per unit of volatility. If you would invest  814,000  in FnGuide on September 22, 2024 and sell it today you would earn a total of  0.00  from holding FnGuide or generate 0.0% return on investment over 90 days.

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

Company K Partners  vs.  FnGuide

Company K Partners

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Company K Partners has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Company K is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

FnGuide

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FnGuide 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 somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Company K and FnGuide

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

The idea behind Company K Partners and FnGuide 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.