Correlation Between Tile Shop and Kingfisher Plc

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

By analyzing existing cross correlation between Tile Shop Holdings and Kingfisher plc, you can compare the effects of market volatilities on Tile Shop and Kingfisher Plc 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 Tile Shop with a short position of Kingfisher Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tile Shop and Kingfisher Plc.

Diversification Opportunities for Tile Shop and Kingfisher Plc

-0.62

Correlation Coefficient

Tile Shop  Kingfisher Plc

Excellent diversification

The 3 months correlation between Tile and Kingfisher is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Tile Shop Holdings and Kingfisher plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kingfisher plc and Tile Shop 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 Tile Shop Holdings are associated (or correlated) with Kingfisher Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kingfisher plc has no effect on the direction of Tile Shop i.e., Tile Shop and Kingfisher Plc go up and down completely randomly.

Pair Corralation between Tile Shop and Kingfisher Plc

Given the investment horizon of 90 days Tile Shop Holdings is expected to under-perform the Kingfisher Plc. But the stock apears to be less risky and, when comparing its historical volatility, Tile Shop Holdings is 1.75 times less risky than Kingfisher Plc. The stock trades about -0.04 of its potential returns per unit of risk. The Kingfisher plc is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  305.00  in Kingfisher plc on December 30, 2024 and sell it today you would earn a total of  6.00  from holding Kingfisher plc or generate 1.97% return on investment over 90 days.

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

Tile Shop Holdings  vs.  Kingfisher plc

Tile Shop Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tile Shop Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Tile Shop is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Kingfisher plc

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Kingfisher plc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical indicators, Kingfisher Plc is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Tile Shop and Kingfisher Plc

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

The idea behind Tile Shop Holdings and Kingfisher plc 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.