Correlation Between KRISPY KREME and Federal Signal

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

By analyzing existing cross correlation between KRISPY KREME DL 01 and Federal Signal, you can compare the effects of market volatilities on KRISPY KREME and Federal Signal 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 KRISPY KREME with a short position of Federal Signal. Check out your portfolio center. Please also check ongoing floating volatility patterns of KRISPY KREME and Federal Signal.

Diversification Opportunities for KRISPY KREME and Federal Signal

-0.23

Correlation Coefficient

KRISPY KREME  Federal Signal

Very good diversification

The 3 months correlation between KRISPY and Federal is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding KRISPY KREME DL 01 and Federal Signal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Signal and KRISPY KREME 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 KRISPY KREME DL 01 are associated (or correlated) with Federal Signal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Signal has no effect on the direction of KRISPY KREME i.e., KRISPY KREME and Federal Signal go up and down completely randomly.

Pair Corralation between KRISPY KREME and Federal Signal

Assuming the 90 days horizon KRISPY KREME DL 01 is expected to under-perform the Federal Signal. In addition to that, KRISPY KREME is 1.57 times more volatile than Federal Signal. It trades about -0.03 of its total potential returns per unit of risk. Federal Signal is currently generating about 0.06 per unit of volatility. If you would invest  6,908  in Federal Signal on September 15, 2024 and sell it today you would earn a total of  2,142  from holding Federal Signal or generate 31.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.6%
Values	Daily Returns

KRISPY KREME DL 01  vs.  Federal Signal

KRISPY KREME DL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KRISPY KREME DL 01 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile 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.

Federal Signal

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Signal are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Federal Signal reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KRISPY KREME and Federal Signal

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

The idea behind KRISPY KREME DL 01 and Federal Signal 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.