Correlation Between K-Bro Linen and Information Services

Can any of the company-specific risk be diversified away by investing in both K-Bro Linen and Information Services 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 K-Bro Linen and Information Services into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between K Bro Linen and Information Services, you can compare the effects of market volatilities on K-Bro Linen and Information Services 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 K-Bro Linen with a short position of Information Services. Check out your portfolio center. Please also check ongoing floating volatility patterns of K-Bro Linen and Information Services.

Diversification Opportunities for K-Bro Linen and Information Services

-0.04

Correlation Coefficient

K-Bro Linen  Information Services

Good diversification

The 3 months correlation between K-Bro and Information is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding K Bro Linen and Information Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Information Services and K-Bro Linen 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 K Bro Linen are associated (or correlated) with Information Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Information Services has no effect on the direction of K-Bro Linen i.e., K-Bro Linen and Information Services go up and down completely randomly.

Pair Corralation between K-Bro Linen and Information Services

Assuming the 90 days trading horizon K Bro Linen is expected to under-perform the Information Services. But the stock apears to be less risky and, when comparing its historical volatility, K Bro Linen is 1.1 times less risky than Information Services. The stock trades about -0.16 of its potential returns per unit of risk. The Information Services is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  2,706  in Information Services on December 1, 2024 and sell it today you would lose (24.00) from holding Information Services or give up 0.89% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	70.49%
Values	Daily Returns

K Bro Linen  vs.  Information Services

K Bro Linen

Risk-Adjusted Performance

Very Weak

Over the last 90 days K Bro Linen 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 essential indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Information Services

Risk-Adjusted Performance

Very Weak

Over the last 90 days Information Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Information Services is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with K-Bro Linen and Information Services

The main advantage of trading using opposite K-Bro Linen and Information Services positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if K-Bro Linen position performs unexpectedly, Information Services 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 Information Services will offset losses from the drop in Information Services' long position.

The idea behind K Bro Linen and Information Services 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.

Check out your portfolio center.

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.