Correlation Between Pure Cycle and WK Kellogg

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

By analyzing existing cross correlation between Pure Cycle and WK Kellogg Co, you can compare the effects of market volatilities on Pure Cycle and WK Kellogg 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 Pure Cycle with a short position of WK Kellogg. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pure Cycle and WK Kellogg.

Diversification Opportunities for Pure Cycle and WK Kellogg

0.8

Correlation Coefficient

Pure Cycle  WK Kellogg

Very poor diversification

The 3 months correlation between Pure and KLG is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Pure Cycle and WK Kellogg Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WK Kellogg and Pure Cycle 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 Pure Cycle are associated (or correlated) with WK Kellogg. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WK Kellogg has no effect on the direction of Pure Cycle i.e., Pure Cycle and WK Kellogg go up and down completely randomly.

Pair Corralation between Pure Cycle and WK Kellogg

Given the investment horizon of 90 days Pure Cycle is expected to generate 1.1 times more return on investment than WK Kellogg. However, Pure Cycle is 1.1 times more volatile than WK Kellogg Co. It trades about -0.19 of its potential returns per unit of risk. WK Kellogg Co is currently generating about -0.32 per unit of risk. If you would invest  1,360  in Pure Cycle on October 9, 2024 and sell it today you would lose (141.00) from holding Pure Cycle or give up 10.37% of portfolio value over 90 days.

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

Pure Cycle  vs.  WK Kellogg Co

Pure Cycle

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pure Cycle are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, Pure Cycle displayed solid returns over the last few months and may actually be approaching a breakup point.

WK Kellogg

Risk-Adjusted Performance

2 of 100

Weak

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

Pair Trading with Pure Cycle and WK Kellogg

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

The idea behind Pure Cycle and WK Kellogg Co 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.