Correlation Between Knife River and Park Electrochemical

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

By analyzing existing cross correlation between Knife River and Park Electrochemical, you can compare the effects of market volatilities on Knife River and Park Electrochemical 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 Park Electrochemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Knife River and Park Electrochemical.

Diversification Opportunities for Knife River and Park Electrochemical

0.85

Correlation Coefficient

Knife River  Park Electrochemical

Very poor diversification

The 3 months correlation between Knife and Park is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Knife River and Park Electrochemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Park Electrochemical 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 Park Electrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Park Electrochemical has no effect on the direction of Knife River i.e., Knife River and Park Electrochemical go up and down completely randomly.

Pair Corralation between Knife River and Park Electrochemical

Considering the 90-day investment horizon Knife River is expected to under-perform the Park Electrochemical. In addition to that, Knife River is 1.76 times more volatile than Park Electrochemical. It trades about -0.03 of its total potential returns per unit of risk. Park Electrochemical is currently generating about -0.01 per unit of volatility. If you would invest  1,439  in Park Electrochemical on December 27, 2024 and sell it today you would lose (28.00) from holding Park Electrochemical or give up 1.95% of portfolio value over 90 days.

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

Knife River  vs.  Park Electrochemical

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 recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Park Electrochemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Park Electrochemical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward-looking signals, Park Electrochemical is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Knife River and Park Electrochemical

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

The idea behind Knife River and Park Electrochemical 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.