Correlation Between Knife River and Eagle Plains

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

By analyzing existing cross correlation between Knife River and Eagle Plains Resources, you can compare the effects of market volatilities on Knife River and Eagle Plains 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 Knife River with a short position of Eagle Plains. Check out your portfolio center. Please also check ongoing floating volatility patterns of Knife River and Eagle Plains.

Diversification Opportunities for Knife River and Eagle Plains

-0.51

Correlation Coefficient

Knife River  Eagle Plains

Excellent diversification

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

Pair Corralation between Knife River and Eagle Plains

Considering the 90-day investment horizon Knife River is expected to under-perform the Eagle Plains. But the stock apears to be less risky and, when comparing its historical volatility, Knife River is 4.91 times less risky than Eagle Plains. The stock trades about -0.01 of its potential returns per unit of risk. The Eagle Plains Resources is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  6.00  in Eagle Plains Resources on December 19, 2024 and sell it today you would earn a total of  5.00  from holding Eagle Plains Resources or generate 83.33% return on investment over 90 days.

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

Knife River  vs.  Eagle Plains Resources

Knife River

Risk-Adjusted Performance

Very Weak

Over the last 90 days Knife River has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Knife River is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Eagle Plains Resources

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Eagle Plains Resources are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Eagle Plains reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Knife River and Eagle Plains

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

The idea behind Knife River and Eagle Plains Resources 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.