Correlation Between Tile Shop and Kirklands

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

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

Diversification Opportunities for Tile Shop and Kirklands

0.35

Correlation Coefficient

Tile Shop  Kirklands

Weak diversification

The 3 months correlation between Tile and Kirklands is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Tile Shop Holdings and Kirklands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kirklands and Tile Shop 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 Tile Shop Holdings 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 Tile Shop i.e., Tile Shop and Kirklands go up and down completely randomly.

Pair Corralation between Tile Shop and Kirklands

Given the investment horizon of 90 days Tile Shop Holdings is expected to generate 0.52 times more return on investment than Kirklands. However, Tile Shop Holdings is 1.93 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  429.00  in Tile Shop Holdings on January 3, 2025 and sell it today you would earn a total of  165.00  from holding Tile Shop Holdings or generate 38.46% return on investment over 90 days.

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

Tile Shop Holdings  vs.  Kirklands

Tile Shop Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tile Shop Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Kirklands

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kirklands has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in May 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Tile Shop and Kirklands

The main advantage of trading using opposite Tile Shop and Kirklands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tile Shop 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 Tile Shop Holdings 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.

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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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.