Correlation Between Big 5 and KRISPY KREME

Can any of the company-specific risk be diversified away by investing in both Big 5 and KRISPY KREME 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 Big 5 and KRISPY KREME into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Big 5 Sporting and KRISPY KREME DL 01, you can compare the effects of market volatilities on Big 5 and KRISPY KREME 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 Big 5 with a short position of KRISPY KREME. Check out your portfolio center. Please also check ongoing floating volatility patterns of Big 5 and KRISPY KREME.

Diversification Opportunities for Big 5 and KRISPY KREME

0.01

Correlation Coefficient

Big 5  KRISPY KREME

Significant diversification

The 3 months correlation between Big and KRISPY is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Big 5 Sporting and KRISPY KREME DL 01 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KRISPY KREME DL and Big 5 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 Big 5 Sporting are associated (or correlated) with KRISPY KREME. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KRISPY KREME DL has no effect on the direction of Big 5 i.e., Big 5 and KRISPY KREME go up and down completely randomly.

Pair Corralation between Big 5 and KRISPY KREME

Assuming the 90 days horizon Big 5 Sporting is expected to under-perform the KRISPY KREME. In addition to that, Big 5 is 1.44 times more volatile than KRISPY KREME DL 01. It trades about -0.06 of its total potential returns per unit of risk. KRISPY KREME DL 01 is currently generating about 0.01 per unit of volatility. If you would invest  947.00  in KRISPY KREME DL 01 on September 19, 2024 and sell it today you would lose (32.00) from holding KRISPY KREME DL 01 or give up 3.38% of portfolio value over 90 days.

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

Big 5 Sporting  vs.  KRISPY KREME DL 01

Big 5 Sporting

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Big 5 Sporting has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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 fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Big 5 and KRISPY KREME

The main advantage of trading using opposite Big 5 and KRISPY KREME positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Big 5 position performs unexpectedly, KRISPY KREME 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 KRISPY KREME will offset losses from the drop in KRISPY KREME's long position.

The idea behind Big 5 Sporting and KRISPY KREME DL 01 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.