Correlation Between Century Insurance and NetSol Technologies

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

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

Diversification Opportunities for Century Insurance and NetSol Technologies

0.72

Correlation Coefficient

Century Insurance  NetSol Technologies

Poor diversification

The 3 months correlation between Century and NetSol is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Century Insurance and NetSol Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetSol Technologies and Century Insurance 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 Century Insurance are associated (or correlated) with NetSol Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NetSol Technologies has no effect on the direction of Century Insurance i.e., Century Insurance and NetSol Technologies go up and down completely randomly.

Pair Corralation between Century Insurance and NetSol Technologies

Assuming the 90 days trading horizon Century Insurance is expected to generate 1.2 times more return on investment than NetSol Technologies. However, Century Insurance is 1.2 times more volatile than NetSol Technologies. It trades about 0.25 of its potential returns per unit of risk. NetSol Technologies is currently generating about 0.12 per unit of risk. If you would invest  2,671  in Century Insurance on September 3, 2024 and sell it today you would earn a total of  1,073  from holding Century Insurance or generate 40.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.31%
Values	Daily Returns

Century Insurance  vs.  NetSol Technologies

Century Insurance

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Century Insurance are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Century Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.

NetSol Technologies

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NetSol Technologies are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, NetSol Technologies sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Century Insurance and NetSol Technologies

The main advantage of trading using opposite Century Insurance and NetSol Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Century Insurance position performs unexpectedly, NetSol Technologies 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 NetSol Technologies will offset losses from the drop in NetSol Technologies' long position.

The idea behind Century Insurance and NetSol Technologies 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.