Correlation Between Lowes Companies and Kirklands

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

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

Diversification Opportunities for Lowes Companies and Kirklands

-0.37

Correlation Coefficient

Lowes Companies  Kirklands

Very good diversification

The 3 months correlation between Lowes and Kirklands is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Lowes Companies and Kirklands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kirklands and Lowes Companies 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 Lowes Companies 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 Lowes Companies i.e., Lowes Companies and Kirklands go up and down completely randomly.

Pair Corralation between Lowes Companies and Kirklands

Considering the 90-day investment horizon Lowes Companies is expected to generate 0.19 times more return on investment than Kirklands. However, Lowes Companies is 5.14 times less risky than Kirklands. It trades about -0.34 of its potential returns per unit of risk. Kirklands is currently generating about -0.16 per unit of risk. If you would invest  24,809  in Lowes Companies on January 31, 2024 and sell it today you would lose (2,010) from holding Lowes Companies or give up 8.1% of portfolio value over 90 days.

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

Lowes Companies  vs.  Kirklands

Lowes Companies

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lowes Companies are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Lowes Companies may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Kirklands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kirklands has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in May 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Lowes Companies and Kirklands

The main advantage of trading using opposite Lowes Companies and Kirklands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lowes Companies 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 Lowes Companies 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.