Correlation Between Knorr Bremse and Seek

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

By analyzing existing cross correlation between Knorr Bremse Aktiengesellschaft and Seek Ltd ADR, you can compare the effects of market volatilities on Knorr Bremse and Seek 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 Knorr Bremse with a short position of Seek. Check out your portfolio center. Please also check ongoing floating volatility patterns of Knorr Bremse and Seek.

Diversification Opportunities for Knorr Bremse and Seek

0.65

Correlation Coefficient

Knorr Bremse  Seek

Poor diversification

The 3 months correlation between Knorr and Seek is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Knorr Bremse Aktiengesellschaf and Seek Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seek Ltd ADR and Knorr Bremse 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 Knorr Bremse Aktiengesellschaft are associated (or correlated) with Seek. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Seek Ltd ADR has no effect on the direction of Knorr Bremse i.e., Knorr Bremse and Seek go up and down completely randomly.

Pair Corralation between Knorr Bremse and Seek

Assuming the 90 days horizon Knorr Bremse Aktiengesellschaft is expected to generate 0.85 times more return on investment than Seek. However, Knorr Bremse Aktiengesellschaft is 1.18 times less risky than Seek. It trades about -0.18 of its potential returns per unit of risk. Seek Ltd ADR is currently generating about -0.17 per unit of risk. If you would invest  2,183  in Knorr Bremse Aktiengesellschaft on October 20, 2024 and sell it today you would lose (381.00) from holding Knorr Bremse Aktiengesellschaft or give up 17.45% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

Knorr Bremse Aktiengesellschaf  vs.  Seek Ltd ADR

Knorr Bremse Aktieng

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Knorr Bremse Aktiengesellschaft 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 fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Seek Ltd ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Seek Ltd ADR 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 fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Knorr Bremse and Seek

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

The idea behind Knorr Bremse Aktiengesellschaft and Seek Ltd ADR 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.