Correlation Between Krispy Kreme and Target

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

By analyzing existing cross correlation between Krispy Kreme and Target, you can compare the effects of market volatilities on Krispy Kreme and Target 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 Target. Check out your portfolio center. Please also check ongoing floating volatility patterns of Krispy Kreme and Target.

Diversification Opportunities for Krispy Kreme and Target

0.51

Correlation Coefficient

Krispy Kreme  Target

Very weak diversification

The 3 months correlation between Krispy and Target is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Krispy Kreme and Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target 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 are associated (or correlated) with Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Target has no effect on the direction of Krispy Kreme i.e., Krispy Kreme and Target go up and down completely randomly.

Pair Corralation between Krispy Kreme and Target

Given the investment horizon of 90 days Krispy Kreme is expected to under-perform the Target. But the stock apears to be less risky and, when comparing its historical volatility, Krispy Kreme is 1.31 times less risky than Target. The stock trades about -0.71 of its potential returns per unit of risk. The Target is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  13,053  in Target on September 24, 2024 and sell it today you would lose (3.00) from holding Target or give up 0.02% of portfolio value over 90 days.

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

Krispy Kreme  vs.  Target

Krispy Kreme

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Krispy Kreme has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Target

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Target has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Krispy Kreme and Target

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

The idea behind Krispy Kreme and Target 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.