Correlation Between Black Knight and Adobe Systems

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Can any of the company-specific risk be diversified away by investing in both Black Knight and Adobe Systems 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 Black Knight and Adobe Systems into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Black Knight and Adobe Systems, you can compare the effects of market volatilities on Black Knight and Adobe Systems 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 Black Knight with a short position of Adobe Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of Black Knight and Adobe Systems.

Diversification Opportunities for Black Knight and Adobe Systems

0.38
  Correlation Coefficient

Weak diversification

The 3 months correlation between Black and Adobe is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Black Knight and Adobe Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adobe Systems and Black Knight 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 Black Knight are associated (or correlated) with Adobe Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adobe Systems has no effect on the direction of Black Knight i.e., Black Knight and Adobe Systems go up and down completely randomly.

Pair Corralation between Black Knight and Adobe Systems

Considering the 90-day investment horizon Black Knight is expected to generate 2.28 times less return on investment than Adobe Systems. But when comparing it to its historical volatility, Black Knight is 1.5 times less risky than Adobe Systems. It trades about 0.28 of its potential returns per unit of risk. Adobe Systems is currently generating about 0.42 of returns per unit of risk over similar time horizon. If you would invest  37,523  in Adobe Systems on May 17, 2022 and sell it today you would earn a total of  7,579  from holding Adobe Systems or generate 20.2% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Black Knight  vs.  Adobe Systems

 Performance (%) 
       Timeline  
Black Knight 
Black Performance
0 of 100
Over the last 90 days Black Knight has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking signals, Black Knight is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Black Price Channel

Adobe Systems 
Adobe Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Adobe Systems are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental drivers, Adobe Systems may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Adobe Price Channel

Black Knight and Adobe Systems Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Black Knight and Adobe Systems

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

Adobe Systems

Pair trading matchups for Adobe Systems

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The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Adobe Systems as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Adobe Systems' systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Adobe Systems' unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Adobe Systems.
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.

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