Correlation Between Krispy Kreme and Frontdoor

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

By analyzing existing cross correlation between Krispy Kreme and Frontdoor, you can compare the effects of market volatilities on Krispy Kreme and Frontdoor 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 Frontdoor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Krispy Kreme and Frontdoor.

Diversification Opportunities for Krispy Kreme and Frontdoor

-0.28

Correlation Coefficient

Krispy Kreme  Frontdoor

Very good diversification

The 3 months correlation between Krispy and Frontdoor is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Krispy Kreme and Frontdoor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frontdoor 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 are associated (or correlated) with Frontdoor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frontdoor has no effect on the direction of Krispy Kreme i.e., Krispy Kreme and Frontdoor go up and down completely randomly.

Pair Corralation between Krispy Kreme and Frontdoor

Given the investment horizon of 90 days Krispy Kreme is expected to under-perform the Frontdoor. But the stock apears to be less risky and, when comparing its historical volatility, Krispy Kreme is 1.39 times less risky than Frontdoor. The stock trades about -0.45 of its potential returns per unit of risk. The Frontdoor is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest  5,860  in Frontdoor on September 30, 2024 and sell it today you would lose (292.00) from holding Frontdoor or give up 4.98% of portfolio value over 90 days.

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

Krispy Kreme  vs.  Frontdoor

Krispy Kreme

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Krispy Kreme has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Frontdoor

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Frontdoor are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting fundamental indicators, Frontdoor reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Krispy Kreme and Frontdoor

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

The idea behind Krispy Kreme and Frontdoor 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.