Correlation Between Capital Income and Knife River

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

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

Diversification Opportunities for Capital Income and Knife River

0.33

Correlation Coefficient

Capital Income  Knife River

Weak diversification

The 3 months correlation between Capital and Knife is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Capital Income Builder and Knife River in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Knife River and Capital Income 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 Capital Income Builder 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 Capital Income i.e., Capital Income and Knife River go up and down completely randomly.

Pair Corralation between Capital Income and Knife River

Assuming the 90 days horizon Capital Income is expected to generate 89.4 times less return on investment than Knife River. But when comparing it to its historical volatility, Capital Income Builder is 5.46 times less risky than Knife River. It trades about 0.01 of its potential returns per unit of risk. Knife River is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  7,887  in Knife River on August 30, 2024 and sell it today you would earn a total of  2,388  from holding Knife River or generate 30.28% return on investment over 90 days.

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

Capital Income Builder  vs.  Knife River

Capital Income Builder

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Capital Income Builder has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Capital Income 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

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Knife River are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Knife River reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Capital Income and Knife River

The main advantage of trading using opposite Capital Income and Knife River positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital Income 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 Capital Income Builder 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.