Correlation Between Kirklands and Floor Decor

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

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

Diversification Opportunities for Kirklands and Floor Decor

0.73

Correlation Coefficient

Kirklands  Floor Decor

Poor diversification

The 3 months correlation between Kirklands and Floor is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Kirklands and Floor Decor Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Floor Decor Holdings and Kirklands 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 Kirklands are associated (or correlated) with Floor Decor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Floor Decor Holdings has no effect on the direction of Kirklands i.e., Kirklands and Floor Decor go up and down completely randomly.

Pair Corralation between Kirklands and Floor Decor

Given the investment horizon of 90 days Kirklands is expected to under-perform the Floor Decor. In addition to that, Kirklands is 1.29 times more volatile than Floor Decor Holdings. It trades about -0.12 of its total potential returns per unit of risk. Floor Decor Holdings is currently generating about -0.14 per unit of volatility. If you would invest  9,989  in Floor Decor Holdings on December 29, 2024 and sell it today you would lose (1,949) from holding Floor Decor Holdings or give up 19.51% of portfolio value over 90 days.

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

Kirklands  vs.  Floor Decor Holdings

Kirklands

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kirklands has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Floor Decor Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Floor Decor Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Kirklands and Floor Decor

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

The idea behind Kirklands and Floor Decor 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.