Correlation Between Park Electrochemical and Knife River

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

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

Diversification Opportunities for Park Electrochemical and Knife River

0.86

Correlation Coefficient

Park Electrochemical  Knife River

Very poor diversification

The 3 months correlation between Park and Knife is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Park Electrochemical and Knife River in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Knife River and Park Electrochemical 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 Park Electrochemical are associated (or correlated) with Knife River. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Knife River has no effect on the direction of Park Electrochemical i.e., Park Electrochemical and Knife River go up and down completely randomly.

Pair Corralation between Park Electrochemical and Knife River

Considering the 90-day investment horizon Park Electrochemical is expected to generate 0.62 times more return on investment than Knife River. However, Park Electrochemical is 1.61 times less risky than Knife River. It trades about 0.01 of its potential returns per unit of risk. Knife River is currently generating about -0.05 per unit of risk. If you would invest  1,395  in Park Electrochemical on December 20, 2024 and sell it today you would lose (1.00) from holding Park Electrochemical or give up 0.07% of portfolio value over 90 days.

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

Park Electrochemical  vs.  Knife River

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.

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 latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Park Electrochemical and Knife River

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

The idea behind Park Electrochemical and Knife River 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.