Correlation Between KINDER and Entravision Communications

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

By analyzing existing cross correlation between KINDER MORGAN ENERGY and Entravision Communications, you can compare the effects of market volatilities on KINDER and Entravision Communications 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 KINDER with a short position of Entravision Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of KINDER and Entravision Communications.

Diversification Opportunities for KINDER and Entravision Communications

-0.37

Correlation Coefficient

KINDER  Entravision Communications

Very good diversification

The 3 months correlation between KINDER and Entravision is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding KINDER MORGAN ENERGY and Entravision Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Entravision Communications and KINDER 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 KINDER MORGAN ENERGY are associated (or correlated) with Entravision Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Entravision Communications has no effect on the direction of KINDER i.e., KINDER and Entravision Communications go up and down completely randomly.

Pair Corralation between KINDER and Entravision Communications

Assuming the 90 days trading horizon KINDER MORGAN ENERGY is expected to generate 0.37 times more return on investment than Entravision Communications. However, KINDER MORGAN ENERGY is 2.71 times less risky than Entravision Communications. It trades about 0.01 of its potential returns per unit of risk. Entravision Communications is currently generating about -0.01 per unit of risk. If you would invest  10,108  in KINDER MORGAN ENERGY on December 26, 2024 and sell it today you would lose (4.00) from holding KINDER MORGAN ENERGY or give up 0.04% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.77%
Values	Daily Returns

KINDER MORGAN ENERGY  vs.  Entravision Communications

KINDER MORGAN ENERGY

Risk-Adjusted Performance

Very Weak

Over the last 90 days KINDER MORGAN ENERGY has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, KINDER is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Entravision Communications

Risk-Adjusted Performance

Very Weak

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

Pair Trading with KINDER and Entravision Communications

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

The idea behind KINDER MORGAN ENERGY and Entravision Communications 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.