Correlation Between European Residential and K Bro

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

By analyzing existing cross correlation between European Residential Real and K Bro Linen, you can compare the effects of market volatilities on European Residential and K Bro 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 European Residential with a short position of K Bro. Check out your portfolio center. Please also check ongoing floating volatility patterns of European Residential and K Bro.

Diversification Opportunities for European Residential and K Bro

0.72

Correlation Coefficient

European Residential  K Bro

Poor diversification

The 3 months correlation between European and KBL is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding European Residential Real and K Bro Linen in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on K Bro Linen and European Residential 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 European Residential Real are associated (or correlated) with K Bro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of K Bro Linen has no effect on the direction of European Residential i.e., European Residential and K Bro go up and down completely randomly.

Pair Corralation between European Residential and K Bro

Assuming the 90 days trading horizon European Residential is expected to generate 2.58 times less return on investment than K Bro. In addition to that, European Residential is 1.01 times more volatile than K Bro Linen. It trades about 0.17 of its total potential returns per unit of risk. K Bro Linen is currently generating about 0.46 per unit of volatility. If you would invest  3,421  in K Bro Linen on September 14, 2024 and sell it today you would earn a total of  426.00  from holding K Bro Linen or generate 12.45% return on investment over 90 days.

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

European Residential Real  vs.  K Bro Linen

European Residential Real

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in European Residential Real are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, European Residential sustained solid returns over the last few months and may actually be approaching a breakup point.

K Bro Linen

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in K Bro Linen are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating essential indicators, K Bro may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with European Residential and K Bro

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

The idea behind European Residential Real and K Bro Linen 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.