Correlation Between Stanley Black and Kennametal

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

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

Diversification Opportunities for Stanley Black and Kennametal

-0.7

Correlation Coefficient

Stanley Black  Kennametal

Excellent diversification

The 3 months correlation between Stanley and Kennametal is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Stanley Black Decker and Kennametal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kennametal and Stanley Black 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 Stanley Black Decker are associated (or correlated) with Kennametal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kennametal has no effect on the direction of Stanley Black i.e., Stanley Black and Kennametal go up and down completely randomly.

Pair Corralation between Stanley Black and Kennametal

Considering the 90-day investment horizon Stanley Black Decker is expected to under-perform the Kennametal. But the stock apears to be less risky and, when comparing its historical volatility, Stanley Black Decker is 1.43 times less risky than Kennametal. The stock trades about -0.08 of its potential returns per unit of risk. The Kennametal is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,504  in Kennametal on September 2, 2024 and sell it today you would earn a total of  366.00  from holding Kennametal or generate 14.62% return on investment over 90 days.

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

Stanley Black Decker  vs.  Kennametal

Stanley Black Decker

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Stanley Black Decker has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Kennametal

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with Stanley Black and Kennametal

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

The idea behind Stanley Black Decker and Kennametal 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.