Correlation Between KBR and Cardno
Can any of the company-specific risk be diversified away by investing in both KBR and Cardno 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 Cardno into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between KBR Inc and Cardno Limited, you can compare the effects of market volatilities on KBR and Cardno 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 Cardno. Check out your portfolio center. Please also check ongoing floating volatility patterns of KBR and Cardno.
Diversification Opportunities for KBR and Cardno
Significant diversification
The 3 months correlation between KBR and Cardno is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding KBR Inc and Cardno Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cardno Limited 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 Cardno. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cardno Limited has no effect on the direction of KBR i.e., KBR and Cardno go up and down completely randomly.
Pair Corralation between KBR and Cardno
Considering the 90-day investment horizon KBR Inc is expected to generate 0.55 times more return on investment than Cardno. However, KBR Inc is 1.82 times less risky than Cardno. It trades about -0.05 of its potential returns per unit of risk. Cardno Limited is currently generating about -0.3 per unit of risk. If you would invest 6,705 in KBR Inc on August 31, 2024 and sell it today you would lose (587.00) from holding KBR Inc or give up 8.75% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
KBR Inc vs. Cardno Limited
Performance |
| Timeline |
| KBR Inc |
| Cardno Limited |
KBR and Cardno Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with KBR and Cardno
The main advantage of trading using opposite KBR and Cardno positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KBR position performs unexpectedly, Cardno 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 Cardno will offset losses from the drop in Cardno's long position.The idea behind KBR Inc and Cardno Limited 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 Anywhere module to track or share privately all of your investments from the convenience of any device.
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