Correlation Between Richards Packaging and K Bro

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

By analyzing existing cross correlation between Richards Packaging Income and K Bro Linen, you can compare the effects of market volatilities on Richards Packaging and K Bro 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 Richards Packaging with a short position of K Bro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Richards Packaging and K Bro.

Diversification Opportunities for Richards Packaging and K Bro

0.74

Correlation Coefficient

Richards Packaging  K Bro

Poor diversification

The 3 months correlation between Richards and KBL is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Richards Packaging Income and K Bro Linen in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on K Bro Linen and Richards Packaging 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 Richards Packaging Income are associated (or correlated) with K Bro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of K Bro Linen has no effect on the direction of Richards Packaging i.e., Richards Packaging and K Bro go up and down completely randomly.

Pair Corralation between Richards Packaging and K Bro

Assuming the 90 days trading horizon Richards Packaging Income is expected to generate 1.14 times more return on investment than K Bro. However, Richards Packaging is 1.14 times more volatile than K Bro Linen. It trades about -0.07 of its potential returns per unit of risk. K Bro Linen is currently generating about -0.1 per unit of risk. If you would invest  2,944  in Richards Packaging Income on December 30, 2024 and sell it today you would lose (208.00) from holding Richards Packaging Income or give up 7.07% of portfolio value over 90 days.

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

Richards Packaging Income  vs.  K Bro Linen

Richards Packaging Income

Risk-Adjusted Performance

Very Weak

Over the last 90 days Richards Packaging Income has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

K Bro Linen

Risk-Adjusted Performance

Very Weak

Over the last 90 days K Bro Linen has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's essential indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Richards Packaging and K Bro

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

The idea behind Richards Packaging Income and K Bro Linen 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.