Correlation Between Knife River and SPACE

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

By analyzing existing cross correlation between Knife River and SPACE, you can compare the effects of market volatilities on Knife River and SPACE 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 SPACE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Knife River and SPACE.

Diversification Opportunities for Knife River and SPACE

0.66

Correlation Coefficient

Knife River  SPACE

Poor diversification

The 3 months correlation between Knife and SPACE is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Knife River and SPACE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPACE 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 SPACE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPACE has no effect on the direction of Knife River i.e., Knife River and SPACE go up and down completely randomly.

Pair Corralation between Knife River and SPACE

Considering the 90-day investment horizon Knife River is expected to generate 5.01 times less return on investment than SPACE. But when comparing it to its historical volatility, Knife River is 1.98 times less risky than SPACE. It trades about 0.09 of its potential returns per unit of risk. SPACE is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  18.00  in SPACE on February 9, 2025 and sell it today you would earn a total of  5.00  from holding SPACE or generate 27.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Knife River  vs.  SPACE

Knife River

Risk-Adjusted Performance

Very Weak

Over the last 90 days Knife River has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Knife River is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

SPACE

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPACE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, SPACE is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Knife River and SPACE

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

The idea behind Knife River and SPACE 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.