Correlation Between Rave Restaurant and KINDER

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

By analyzing existing cross correlation between Rave Restaurant Group and KINDER MORGAN INC, you can compare the effects of market volatilities on Rave Restaurant and KINDER 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 Rave Restaurant with a short position of KINDER. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rave Restaurant and KINDER.

Diversification Opportunities for Rave Restaurant and KINDER

0.33

Correlation Coefficient

Rave Restaurant  KINDER

Weak diversification

The 3 months correlation between Rave and KINDER is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Rave Restaurant Group and KINDER MORGAN INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KINDER MORGAN INC and Rave Restaurant 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 Rave Restaurant Group are associated (or correlated) with KINDER. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KINDER MORGAN INC has no effect on the direction of Rave Restaurant i.e., Rave Restaurant and KINDER go up and down completely randomly.

Pair Corralation between Rave Restaurant and KINDER

Given the investment horizon of 90 days Rave Restaurant is expected to generate 40.55 times less return on investment than KINDER. But when comparing it to its historical volatility, Rave Restaurant Group is 26.66 times less risky than KINDER. It trades about 0.05 of its potential returns per unit of risk. KINDER MORGAN INC is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  7,546  in KINDER MORGAN INC on October 24, 2024 and sell it today you would lose (939.00) from holding KINDER MORGAN INC or give up 12.44% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	90.28%
Values	Daily Returns

Rave Restaurant Group  vs.  KINDER MORGAN INC

Rave Restaurant Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rave Restaurant Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Rave Restaurant is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

KINDER MORGAN INC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KINDER MORGAN INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, KINDER is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Rave Restaurant and KINDER

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

The idea behind Rave Restaurant Group and KINDER MORGAN INC 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.