Correlation Between KKR Real and Lument Finance

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

By analyzing existing cross correlation between KKR Real Estate and Lument Finance Trust, you can compare the effects of market volatilities on KKR Real and Lument Finance 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 KKR Real with a short position of Lument Finance. Check out your portfolio center. Please also check ongoing floating volatility patterns of KKR Real and Lument Finance.

Diversification Opportunities for KKR Real and Lument Finance

0.23

Correlation Coefficient

KKR Real  Lument Finance

Modest diversification

The 3 months correlation between KKR and Lument is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding KKR Real Estate and Lument Finance Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lument Finance Trust and KKR Real 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 KKR Real Estate are associated (or correlated) with Lument Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lument Finance Trust has no effect on the direction of KKR Real i.e., KKR Real and Lument Finance go up and down completely randomly.

Pair Corralation between KKR Real and Lument Finance

Given the investment horizon of 90 days KKR Real is expected to generate 3.57 times less return on investment than Lument Finance. But when comparing it to its historical volatility, KKR Real Estate is 1.56 times less risky than Lument Finance. It trades about 0.04 of its potential returns per unit of risk. Lument Finance Trust is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  239.00  in Lument Finance Trust on September 3, 2024 and sell it today you would earn a total of  25.00  from holding Lument Finance Trust or generate 10.46% return on investment over 90 days.

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

KKR Real Estate  vs.  Lument Finance Trust

KKR Real Estate

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in KKR Real Estate are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, KKR Real is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Lument Finance Trust

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lument Finance Trust are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Lument Finance may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with KKR Real and Lument Finance

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

The idea behind KKR Real Estate and Lument Finance Trust 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.