Correlation Between Kennametal and First Business

Can any of the company-specific risk be diversified away by investing in both Kennametal and First Business 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 Kennametal and First Business into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Kennametal and First Business Financial, you can compare the effects of market volatilities on Kennametal and First Business 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 Kennametal with a short position of First Business. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kennametal and First Business.

Diversification Opportunities for Kennametal and First Business

0.62

Correlation Coefficient

Kennametal  First Business

Poor diversification

The 3 months correlation between Kennametal and First is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Kennametal and First Business Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Business Financial and Kennametal 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 Kennametal are associated (or correlated) with First Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Business Financial has no effect on the direction of Kennametal i.e., Kennametal and First Business go up and down completely randomly.

Pair Corralation between Kennametal and First Business

Considering the 90-day investment horizon Kennametal is expected to generate 1.02 times more return on investment than First Business. However, Kennametal is 1.02 times more volatile than First Business Financial. It trades about 0.2 of its potential returns per unit of risk. First Business Financial is currently generating about -0.02 per unit of risk. If you would invest  1,978  in Kennametal on May 4, 2025 and sell it today you would earn a total of  458.00  from holding Kennametal or generate 23.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Kennametal  vs.  First Business Financial

Kennametal

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kennametal are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting primary indicators, Kennametal unveiled solid returns over the last few months and may actually be approaching a breakup point.

First Business Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Business Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward indicators, First Business is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Kennametal and First Business

The main advantage of trading using opposite Kennametal and First Business positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kennametal position performs unexpectedly, First Business 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 First Business will offset losses from the drop in First Business' long position.

The idea behind Kennametal and First Business Financial 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.

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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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.