Correlation Between Good Times and Krispy Kreme
Can any of the company-specific risk be diversified away by investing in both Good Times 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 Good Times and Krispy Kreme into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Good Times Restaurants and Krispy Kreme, you can compare the effects of market volatilities on Good Times 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 Good Times with a short position of Krispy Kreme. Check out your portfolio center. Please also check ongoing floating volatility patterns of Good Times and Krispy Kreme.
Diversification Opportunities for Good Times and Krispy Kreme
0.59 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Good and Krispy is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Good Times Restaurants and Krispy Kreme in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Krispy Kreme and Good Times 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 Good Times Restaurants 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 has no effect on the direction of Good Times i.e., Good Times and Krispy Kreme go up and down completely randomly.
Pair Corralation between Good Times and Krispy Kreme
Given the investment horizon of 90 days Good Times Restaurants is expected to generate 1.11 times more return on investment than Krispy Kreme. However, Good Times is 1.11 times more volatile than Krispy Kreme. It trades about -0.08 of its potential returns per unit of risk. Krispy Kreme is currently generating about -0.48 per unit of risk. If you would invest 271.00 in Good Times Restaurants on September 15, 2024 and sell it today you would lose (6.00) from holding Good Times Restaurants or give up 2.21% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Good Times Restaurants vs. Krispy Kreme
Performance |
| Timeline |
| Good Times Restaurants |
| Krispy Kreme |
Good Times and Krispy Kreme Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Good Times and Krispy Kreme
The main advantage of trading using opposite Good Times and Krispy Kreme positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Good Times 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 Good Times Restaurants and Krispy Kreme 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.Check out your portfolio center.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.
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