Correlation Between KOT Addu and KSB Pumps
Can any of the company-specific risk be diversified away by investing in both KOT Addu and KSB Pumps 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 KOT Addu and KSB Pumps into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between KOT Addu Power and KSB Pumps, you can compare the effects of market volatilities on KOT Addu and KSB Pumps 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 KOT Addu with a short position of KSB Pumps. Check out your portfolio center. Please also check ongoing floating volatility patterns of KOT Addu and KSB Pumps.
Diversification Opportunities for KOT Addu and KSB Pumps
Very poor diversification
The 3 months correlation between KOT and KSB is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding KOT Addu Power and KSB Pumps in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KSB Pumps and KOT Addu 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 KOT Addu Power are associated (or correlated) with KSB Pumps. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KSB Pumps has no effect on the direction of KOT Addu i.e., KOT Addu and KSB Pumps go up and down completely randomly.
Pair Corralation between KOT Addu and KSB Pumps
Assuming the 90 days trading horizon KOT Addu Power is expected to under-perform the KSB Pumps. But the stock apears to be less risky and, when comparing its historical volatility, KOT Addu Power is 3.38 times less risky than KSB Pumps. The stock trades about -0.1 of its potential returns per unit of risk. The KSB Pumps is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 14,510 in KSB Pumps on October 21, 2024 and sell it today you would earn a total of 1,021 from holding KSB Pumps or generate 7.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
KOT Addu Power vs. KSB Pumps
Performance |
| Timeline |
| KOT Addu Power |
| KSB Pumps |
KOT Addu and KSB Pumps Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with KOT Addu and KSB Pumps
The main advantage of trading using opposite KOT Addu and KSB Pumps positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KOT Addu position performs unexpectedly, KSB Pumps 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 KSB Pumps will offset losses from the drop in KSB Pumps' long position.| KOT Addu vs. Soneri Bank | KOT Addu vs. Sardar Chemical Industries | KOT Addu vs. Atlas Insurance | KOT Addu vs. Reliance Insurance Co |
| KSB Pumps vs. Atlas Insurance | KSB Pumps vs. Habib Insurance | KSB Pumps vs. Askari General Insurance | KSB Pumps vs. Reliance Insurance Co |
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 the Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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