Correlation Between Diversified Energy and Knights Group

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

By analyzing existing cross correlation between Diversified Energy and Knights Group Holdings, you can compare the effects of market volatilities on Diversified Energy and Knights Group 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 Diversified Energy with a short position of Knights Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diversified Energy and Knights Group.

Diversification Opportunities for Diversified Energy and Knights Group

-0.46

Correlation Coefficient

Diversified Energy  Knights Group

Very good diversification

The 3 months correlation between Diversified and Knights is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Diversified Energy and Knights Group Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Knights Group Holdings and Diversified Energy 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 Diversified Energy are associated (or correlated) with Knights Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Knights Group Holdings has no effect on the direction of Diversified Energy i.e., Diversified Energy and Knights Group go up and down completely randomly.

Pair Corralation between Diversified Energy and Knights Group

Assuming the 90 days trading horizon Diversified Energy is expected to generate 0.92 times more return on investment than Knights Group. However, Diversified Energy is 1.09 times less risky than Knights Group. It trades about 0.24 of its potential returns per unit of risk. Knights Group Holdings is currently generating about 0.04 per unit of risk. If you would invest  89,830  in Diversified Energy on October 26, 2024 and sell it today you would earn a total of  41,970  from holding Diversified Energy or generate 46.72% return on investment over 90 days.

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

Diversified Energy  vs.  Knights Group Holdings

Diversified Energy

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Diversified Energy are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Diversified Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

Knights Group Holdings

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Knights Group Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Knights Group may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Diversified Energy and Knights Group

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

The idea behind Diversified Energy and Knights Group Holdings 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.