Correlation Between KRISPY KREME and ALD SA

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

By analyzing existing cross correlation between KRISPY KREME DL 01 and ALD SA, you can compare the effects of market volatilities on KRISPY KREME and ALD SA 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 KRISPY KREME with a short position of ALD SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of KRISPY KREME and ALD SA.

Diversification Opportunities for KRISPY KREME and ALD SA

0.1

Correlation Coefficient

KRISPY KREME  ALD SA

Average diversification

The 3 months correlation between KRISPY and ALD is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding KRISPY KREME DL 01 and ALD SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALD SA and KRISPY KREME 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 KRISPY KREME DL 01 are associated (or correlated) with ALD SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALD SA has no effect on the direction of KRISPY KREME i.e., KRISPY KREME and ALD SA go up and down completely randomly.

Pair Corralation between KRISPY KREME and ALD SA

Assuming the 90 days horizon KRISPY KREME DL 01 is expected to under-perform the ALD SA. But the stock apears to be less risky and, when comparing its historical volatility, KRISPY KREME DL 01 is 1.84 times less risky than ALD SA. The stock trades about -0.59 of its potential returns per unit of risk. The ALD SA is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  587.00  in ALD SA on September 28, 2024 and sell it today you would earn a total of  34.00  from holding ALD SA or generate 5.79% return on investment over 90 days.

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

KRISPY KREME DL 01  vs.  ALD SA

KRISPY KREME DL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KRISPY KREME DL 01 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, KRISPY KREME is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

ALD SA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with KRISPY KREME and ALD SA

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

The idea behind KRISPY KREME DL 01 and ALD SA 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.