Correlation Between Valhi and Knife River

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

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

Diversification Opportunities for Valhi and Knife River

-0.68

Correlation Coefficient

Valhi  Knife River

Excellent diversification

The 3 months correlation between Valhi and Knife is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Valhi Inc and Knife River in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Knife River and Valhi 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 Valhi Inc 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 Valhi i.e., Valhi and Knife River go up and down completely randomly.

Pair Corralation between Valhi and Knife River

Considering the 90-day investment horizon Valhi is expected to generate 1.04 times less return on investment than Knife River. In addition to that, Valhi is 2.17 times more volatile than Knife River. It trades about 0.06 of its total potential returns per unit of risk. Knife River is currently generating about 0.15 per unit of volatility. If you would invest  6,861  in Knife River on September 29, 2024 and sell it today you would earn a total of  3,436  from holding Knife River or generate 50.08% return on investment over 90 days.

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

Valhi Inc  vs.  Knife River

Valhi Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Valhi Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Knife River

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Knife River are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Knife River reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Valhi and Knife River

The main advantage of trading using opposite Valhi and Knife River positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Valhi 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 Valhi Inc 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.