Correlation Between Kontoor Brands and BBB Foods

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

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

Diversification Opportunities for Kontoor Brands and BBB Foods

0.24

Correlation Coefficient

Kontoor Brands  BBB Foods

Modest diversification

The 3 months correlation between Kontoor and BBB is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Kontoor Brands and BBB Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BBB Foods and Kontoor Brands 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 Kontoor Brands are associated (or correlated) with BBB Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BBB Foods has no effect on the direction of Kontoor Brands i.e., Kontoor Brands and BBB Foods go up and down completely randomly.

Pair Corralation between Kontoor Brands and BBB Foods

Considering the 90-day investment horizon Kontoor Brands is expected to generate 0.82 times more return on investment than BBB Foods. However, Kontoor Brands is 1.22 times less risky than BBB Foods. It trades about 0.19 of its potential returns per unit of risk. BBB Foods is currently generating about 0.0 per unit of risk. If you would invest  7,219  in Kontoor Brands on September 5, 2024 and sell it today you would earn a total of  2,186  from holding Kontoor Brands or generate 30.28% return on investment over 90 days.

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

Kontoor Brands  vs.  BBB Foods

Kontoor Brands

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kontoor Brands are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Kontoor Brands sustained solid returns over the last few months and may actually be approaching a breakup point.

BBB Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BBB Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, BBB Foods is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Kontoor Brands and BBB Foods

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

The idea behind Kontoor Brands and BBB Foods 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.