Correlation Between KBR and Argan
Can any of the company-specific risk be diversified away by investing in both KBR and Argan 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 KBR and Argan into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between KBR Inc and Argan Inc, you can compare the effects of market volatilities on KBR and Argan 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 KBR with a short position of Argan. Check out your portfolio center. Please also check ongoing floating volatility patterns of KBR and Argan.
Diversification Opportunities for KBR and Argan
Average diversification
The 3 months correlation between KBR and Argan is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding KBR Inc and Argan Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Argan Inc and KBR 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 KBR Inc are associated (or correlated) with Argan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Argan Inc has no effect on the direction of KBR i.e., KBR and Argan go up and down completely randomly.
Pair Corralation between KBR and Argan
Considering the 90-day investment horizon KBR Inc is expected to under-perform the Argan. But the stock apears to be less risky and, when comparing its historical volatility, KBR Inc is 1.15 times less risky than Argan. The stock trades about -0.1 of its potential returns per unit of risk. The Argan Inc is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 13,120 in Argan Inc on August 27, 2024 and sell it today you would earn a total of 2,743 from holding Argan Inc or generate 20.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
KBR Inc vs. Argan Inc
Performance |
| Timeline |
| KBR Inc |
| Argan Inc |
KBR and Argan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with KBR and Argan
The main advantage of trading using opposite KBR and Argan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KBR position performs unexpectedly, Argan 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 Argan will offset losses from the drop in Argan's long position.The idea behind KBR Inc and Argan Inc 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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