Correlation Between KNOT Offshore and Cool

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

By analyzing existing cross correlation between KNOT Offshore Partners and Cool Company, you can compare the effects of market volatilities on KNOT Offshore and Cool 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 KNOT Offshore with a short position of Cool. Check out your portfolio center. Please also check ongoing floating volatility patterns of KNOT Offshore and Cool.

Diversification Opportunities for KNOT Offshore and Cool

0.87

Correlation Coefficient

KNOT Offshore  Cool

Very poor diversification

The 3 months correlation between KNOT and Cool is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding KNOT Offshore Partners and Cool Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cool Company and KNOT Offshore 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 KNOT Offshore Partners are associated (or correlated) with Cool. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cool Company has no effect on the direction of KNOT Offshore i.e., KNOT Offshore and Cool go up and down completely randomly.

Pair Corralation between KNOT Offshore and Cool

Given the investment horizon of 90 days KNOT Offshore is expected to generate 1.25 times less return on investment than Cool. In addition to that, KNOT Offshore is 1.06 times more volatile than Cool Company. It trades about 0.18 of its total potential returns per unit of risk. Cool Company is currently generating about 0.24 per unit of volatility. If you would invest  746.00  in Cool Company on October 7, 2024 and sell it today you would earn a total of  86.00  from holding Cool Company or generate 11.53% return on investment over 90 days.

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

KNOT Offshore Partners  vs.  Cool Company

KNOT Offshore Partners

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KNOT Offshore Partners has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, KNOT Offshore is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Cool Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cool Company 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 fundamental indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with KNOT Offshore and Cool

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

The idea behind KNOT Offshore Partners and Cool Company 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.