Correlation Between Knife River and MicroSectors FANG
Can any of the company-specific risk be diversified away by investing in both Knife River and MicroSectors FANG 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 Knife River and MicroSectors FANG into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Knife River and MicroSectors FANG Index, you can compare the effects of market volatilities on Knife River and MicroSectors FANG 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 Knife River with a short position of MicroSectors FANG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Knife River and MicroSectors FANG.
Diversification Opportunities for Knife River and MicroSectors FANG
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Knife and MicroSectors is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Knife River and MicroSectors FANG Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MicroSectors FANG Index and Knife River 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 Knife River are associated (or correlated) with MicroSectors FANG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MicroSectors FANG Index has no effect on the direction of Knife River i.e., Knife River and MicroSectors FANG go up and down completely randomly.
Pair Corralation between Knife River and MicroSectors FANG
Considering the 90-day investment horizon Knife River is expected to generate 2.33 times less return on investment than MicroSectors FANG. But when comparing it to its historical volatility, Knife River is 1.15 times less risky than MicroSectors FANG. It trades about 0.1 of its potential returns per unit of risk. MicroSectors FANG Index is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest 43,732 in MicroSectors FANG Index on September 2, 2024 and sell it today you would earn a total of 7,068 from holding MicroSectors FANG Index or generate 16.16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Knife River vs. MicroSectors FANG Index
Performance |
| Timeline |
| Knife River |
| MicroSectors FANG Index |
Knife River and MicroSectors FANG Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Knife River and MicroSectors FANG
The main advantage of trading using opposite Knife River and MicroSectors FANG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Knife River position performs unexpectedly, MicroSectors FANG 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 MicroSectors FANG will offset losses from the drop in MicroSectors FANG's long position.| Knife River vs. Marchex | Knife River vs. WPP PLC ADR | Knife River vs. Sensient Technologies | Knife River vs. Stepan Company |
| MicroSectors FANG vs. Direxion Daily Semiconductor | MicroSectors FANG vs. MicroSectors Solactive FANG | MicroSectors FANG vs. MicroSectors FANG Index | MicroSectors FANG vs. Direxion Daily Technology |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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