Correlation Between Kingfisher PLC and Aarons

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

Diversification Opportunities for Kingfisher PLC and Aarons

0.82
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Kingfisher and Aarons is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Kingfisher PLC ADR and Aarons Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aarons Inc and Kingfisher PLC 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 Kingfisher PLC ADR are associated (or correlated) with Aarons. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aarons Inc has no effect on the direction of Kingfisher PLC i.e., Kingfisher PLC and Aarons go up and down completely randomly.

Pair Corralation between Kingfisher PLC and Aarons

Assuming the 90 days horizon Kingfisher PLC is expected to generate 1.32 times less return on investment than Aarons. But when comparing it to its historical volatility, Kingfisher PLC ADR is 1.36 times less risky than Aarons. It trades about 0.33 of its potential returns per unit of risk. Aarons Inc is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  984.00  in Aarons Inc on September 6, 2022 and sell it today you would earn a total of  256.00  from holding Aarons Inc or generate 26.02% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy95.24%
ValuesDaily Returns

Kingfisher PLC ADR  vs.  Aarons Inc

 Performance (%) 
       Timeline  
Kingfisher PLC ADR 
Kingfisher Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Kingfisher PLC ADR are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain technical indicators, Kingfisher PLC showed solid returns over the last few months and may actually be approaching a breakup point.

Kingfisher Price Channel

Aarons Inc 
Aarons Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Aarons Inc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Aarons disclosed solid returns over the last few months and may actually be approaching a breakup point.

Aarons Price Channel

Kingfisher PLC and Aarons Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Kingfisher PLC and Aarons

The main advantage of trading using opposite Kingfisher PLC and Aarons positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kingfisher PLC position performs unexpectedly, Aarons 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 Aarons will offset losses from the drop in Aarons' long position.
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The idea behind Kingfisher PLC ADR and Aarons Inc 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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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 Focused Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.

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