Correlation Between Big Bird and KSB Pumps

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

By analyzing existing cross correlation between Big Bird Foods and KSB Pumps, you can compare the effects of market volatilities on Big Bird and KSB Pumps 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 Big Bird with a short position of KSB Pumps. Check out your portfolio center. Please also check ongoing floating volatility patterns of Big Bird and KSB Pumps.

Diversification Opportunities for Big Bird and KSB Pumps

-0.76

Correlation Coefficient

Big Bird  KSB Pumps

Pay attention - limited upside

The 3 months correlation between Big and KSB is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Big Bird Foods and KSB Pumps in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KSB Pumps and Big Bird 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 Big Bird Foods are associated (or correlated) with KSB Pumps. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KSB Pumps has no effect on the direction of Big Bird i.e., Big Bird and KSB Pumps go up and down completely randomly.

Pair Corralation between Big Bird and KSB Pumps

Assuming the 90 days trading horizon Big Bird Foods is expected to under-perform the KSB Pumps. In addition to that, Big Bird is 1.31 times more volatile than KSB Pumps. It trades about -0.06 of its total potential returns per unit of risk. KSB Pumps is currently generating about 0.18 per unit of volatility. If you would invest  12,675  in KSB Pumps on October 6, 2024 and sell it today you would earn a total of  3,036  from holding KSB Pumps or generate 23.95% return on investment over 90 days.

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

Big Bird Foods  vs.  KSB Pumps

Big Bird Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Big Bird Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

KSB Pumps

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KSB Pumps are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, KSB Pumps sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Big Bird and KSB Pumps

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

The idea behind Big Bird Foods and KSB Pumps 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.