Correlation Between Knowles Cor and Frequency Electronics

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

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

Diversification Opportunities for Knowles Cor and Frequency Electronics

0.82

Correlation Coefficient

Knowles Cor  Frequency Electronics

Very poor diversification

The 3 months correlation between Knowles and Frequency is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Knowles Cor and Frequency Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frequency Electronics and Knowles Cor 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 Knowles Cor are associated (or correlated) with Frequency Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frequency Electronics has no effect on the direction of Knowles Cor i.e., Knowles Cor and Frequency Electronics go up and down completely randomly.

Pair Corralation between Knowles Cor and Frequency Electronics

Allowing for the 90-day total investment horizon Knowles Cor is expected to under-perform the Frequency Electronics. But the stock apears to be less risky and, when comparing its historical volatility, Knowles Cor is 2.17 times less risky than Frequency Electronics. The stock trades about -0.28 of its potential returns per unit of risk. The Frequency Electronics is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  1,864  in Frequency Electronics on December 29, 2024 and sell it today you would lose (311.00) from holding Frequency Electronics or give up 16.68% of portfolio value over 90 days.

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

Knowles Cor  vs.  Frequency Electronics

Knowles Cor

Risk-Adjusted Performance

Very Weak

Over the last 90 days Knowles Cor 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 basic 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.

Frequency Electronics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Frequency Electronics 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 forward 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.

Pair Trading with Knowles Cor and Frequency Electronics

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

The idea behind Knowles Cor and Frequency Electronics 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.