Correlation Between Cool and KNOT Offshore

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

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

Diversification Opportunities for Cool and KNOT Offshore

0.79

Correlation Coefficient

Cool  KNOT Offshore

Poor diversification

The 3 months correlation between Cool and KNOT is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Cool Company and KNOT Offshore Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KNOT Offshore Partners and Cool 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 Cool Company are associated (or correlated) with KNOT Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KNOT Offshore Partners has no effect on the direction of Cool i.e., Cool and KNOT Offshore go up and down completely randomly.

Pair Corralation between Cool and KNOT Offshore

Given the investment horizon of 90 days Cool Company is expected to under-perform the KNOT Offshore. But the stock apears to be less risky and, when comparing its historical volatility, Cool Company is 1.22 times less risky than KNOT Offshore. The stock trades about -0.01 of its potential returns per unit of risk. The KNOT Offshore Partners is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  544.00  in KNOT Offshore Partners on October 22, 2024 and sell it today you would earn a total of  47.00  from holding KNOT Offshore Partners or generate 8.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	93.55%
Values	Daily Returns

Cool Company  vs.  KNOT Offshore Partners

Cool Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cool Company has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

KNOT Offshore Partners

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KNOT Offshore Partners has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, KNOT Offshore is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Cool and KNOT Offshore

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

The idea behind Cool Company and KNOT Offshore Partners 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.