Correlation Between RH and Kirklands
Can any of the company-specific risk be diversified away by investing in both RH and Kirklands 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 RH and Kirklands into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between RH and Kirklands, you can compare the effects of market volatilities on RH and Kirklands 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 RH with a short position of Kirklands. Check out your portfolio center. Please also check ongoing floating volatility patterns of RH and Kirklands.
Diversification Opportunities for RH and Kirklands
Poor diversification
The 3 months correlation between RH and Kirklands is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding RH and Kirklands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kirklands and RH 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 RH are associated (or correlated) with Kirklands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kirklands has no effect on the direction of RH i.e., RH and Kirklands go up and down completely randomly.
Pair Corralation between RH and Kirklands
Allowing for the 90-day total investment horizon RH is expected to generate 0.83 times more return on investment than Kirklands. However, RH is 1.21 times less risky than Kirklands. It trades about 0.04 of its potential returns per unit of risk. Kirklands is currently generating about -0.02 per unit of risk. If you would invest 25,904 in RH on August 27, 2024 and sell it today you would earn a total of 10,897 from holding RH or generate 42.07% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
RH vs. Kirklands
Performance |
| Timeline |
| RH |
| Kirklands |
RH and Kirklands Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with RH and Kirklands
The main advantage of trading using opposite RH and Kirklands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RH position performs unexpectedly, Kirklands 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 Kirklands will offset losses from the drop in Kirklands' long position.The idea behind RH and Kirklands 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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