Correlation Between Kingfisher Plc and Lowes Companies

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

By analyzing existing cross correlation between Kingfisher plc and Lowes Companies, you can compare the effects of market volatilities on Kingfisher Plc and Lowes Companies 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 Kingfisher Plc with a short position of Lowes Companies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kingfisher Plc and Lowes Companies.

Diversification Opportunities for Kingfisher Plc and Lowes Companies

-0.59

Correlation Coefficient

Kingfisher Plc  Lowes Companies

Excellent diversification

The 3 months correlation between Kingfisher and Lowes is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Kingfisher plc and Lowes Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lowes Companies and Kingfisher Plc 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 Kingfisher plc are associated (or correlated) with Lowes Companies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lowes Companies has no effect on the direction of Kingfisher Plc i.e., Kingfisher Plc and Lowes Companies go up and down completely randomly.

Pair Corralation between Kingfisher Plc and Lowes Companies

Assuming the 90 days horizon Kingfisher plc is expected to generate 2.39 times more return on investment than Lowes Companies. However, Kingfisher Plc is 2.39 times more volatile than Lowes Companies. It trades about 0.03 of its potential returns per unit of risk. Lowes Companies is currently generating about -0.08 per unit of risk. If you would invest  305.00  in Kingfisher plc on December 30, 2024 and sell it today you would earn a total of  6.00  from holding Kingfisher plc or generate 1.97% return on investment over 90 days.

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

Kingfisher plc  vs.  Lowes Companies

Kingfisher plc

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Kingfisher plc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical indicators, Kingfisher Plc is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Lowes Companies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lowes Companies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Kingfisher Plc and Lowes Companies

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

The idea behind Kingfisher plc and Lowes Companies 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.