Correlation Between KSB Pumps and Punjab Oil

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

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

Diversification Opportunities for KSB Pumps and Punjab Oil

0.76

Correlation Coefficient

KSB Pumps  Punjab Oil

Poor diversification

The 3 months correlation between KSB and Punjab is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding KSB Pumps and Punjab Oil Mills in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Punjab Oil Mills and KSB Pumps 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 KSB Pumps are associated (or correlated) with Punjab Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Punjab Oil Mills has no effect on the direction of KSB Pumps i.e., KSB Pumps and Punjab Oil go up and down completely randomly.

Pair Corralation between KSB Pumps and Punjab Oil

Assuming the 90 days trading horizon KSB Pumps is expected to generate 2.31 times less return on investment than Punjab Oil. But when comparing it to its historical volatility, KSB Pumps is 1.1 times less risky than Punjab Oil. It trades about 0.09 of its potential returns per unit of risk. Punjab Oil Mills is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  10,121  in Punjab Oil Mills on September 14, 2024 and sell it today you would earn a total of  4,106  from holding Punjab Oil Mills or generate 40.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.83%
Values	Daily Returns

KSB Pumps  vs.  Punjab Oil Mills

KSB Pumps

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KSB Pumps are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, KSB Pumps sustained solid returns over the last few months and may actually be approaching a breakup point.

Punjab Oil Mills

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Punjab Oil Mills are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Punjab Oil sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KSB Pumps and Punjab Oil

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

The idea behind KSB Pumps and Punjab Oil Mills 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.