Correlation Between ATT and Knight Therapeutics

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

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

Diversification Opportunities for ATT and Knight Therapeutics

-0.53

Correlation Coefficient

ATT  Knight Therapeutics

Excellent diversification

The 3 months correlation between ATT and Knight is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding ATT Inc and Knight Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Knight Therapeutics and ATT 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 ATT Inc are associated (or correlated) with Knight Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Knight Therapeutics has no effect on the direction of ATT i.e., ATT and Knight Therapeutics go up and down completely randomly.

Pair Corralation between ATT and Knight Therapeutics

Taking into account the 90-day investment horizon ATT Inc is expected to under-perform the Knight Therapeutics. But the stock apears to be less risky and, when comparing its historical volatility, ATT Inc is 1.83 times less risky than Knight Therapeutics. The stock trades about -0.08 of its potential returns per unit of risk. The Knight Therapeutics is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  361.00  in Knight Therapeutics on October 22, 2024 and sell it today you would earn a total of  15.00  from holding Knight Therapeutics or generate 4.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	94.74%
Values	Daily Returns

ATT Inc  vs.  Knight Therapeutics

ATT Inc

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ATT Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, ATT is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Knight Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Knight Therapeutics 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 ATT and Knight Therapeutics

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

The idea behind ATT Inc and Knight Therapeutics 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.