Correlation Between Two Harbors and Knife River

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

By analyzing existing cross correlation between Two Harbors Investments and Knife River, you can compare the effects of market volatilities on Two Harbors and Knife River 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 Two Harbors with a short position of Knife River. Check out your portfolio center. Please also check ongoing floating volatility patterns of Two Harbors and Knife River.

Diversification Opportunities for Two Harbors and Knife River

0.1

Correlation Coefficient

Two Harbors  Knife River

Average diversification

The 3 months correlation between Two and Knife is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Two Harbors Investments and Knife River in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Knife River and Two Harbors 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 Two Harbors Investments are associated (or correlated) with Knife River. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Knife River has no effect on the direction of Two Harbors i.e., Two Harbors and Knife River go up and down completely randomly.

Pair Corralation between Two Harbors and Knife River

Assuming the 90 days trading horizon Two Harbors Investments is expected to generate 0.14 times more return on investment than Knife River. However, Two Harbors Investments is 7.32 times less risky than Knife River. It trades about -0.01 of its potential returns per unit of risk. Knife River is currently generating about -0.03 per unit of risk. If you would invest  2,485  in Two Harbors Investments on December 18, 2024 and sell it today you would lose (7.00) from holding Two Harbors Investments or give up 0.28% of portfolio value over 90 days.

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

Two Harbors Investments  vs.  Knife River

Two Harbors Investments

Risk-Adjusted Performance

Very Weak

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

Knife River

Risk-Adjusted Performance

Very Weak

Over the last 90 days Knife River has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Knife River is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Two Harbors and Knife River

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

The idea behind Two Harbors Investments and Knife River 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..