Correlation Between KSB Pumps and TPL Insurance

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

By analyzing existing cross correlation between KSB Pumps and TPL Insurance, you can compare the effects of market volatilities on KSB Pumps and TPL Insurance 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 TPL Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of KSB Pumps and TPL Insurance.

Diversification Opportunities for KSB Pumps and TPL Insurance

0.53

Correlation Coefficient

KSB Pumps  TPL Insurance

Very weak diversification

The 3 months correlation between KSB and TPL is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding KSB Pumps and TPL Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TPL Insurance 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 TPL Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TPL Insurance has no effect on the direction of KSB Pumps i.e., KSB Pumps and TPL Insurance go up and down completely randomly.

Pair Corralation between KSB Pumps and TPL Insurance

Assuming the 90 days trading horizon KSB Pumps is expected to generate 1.06 times less return on investment than TPL Insurance. In addition to that, KSB Pumps is 1.17 times more volatile than TPL Insurance. It trades about 0.22 of its total potential returns per unit of risk. TPL Insurance is currently generating about 0.27 per unit of volatility. If you would invest  936.00  in TPL Insurance on September 13, 2024 and sell it today you would earn a total of  174.00  from holding TPL Insurance or generate 18.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

KSB Pumps  vs.  TPL Insurance

KSB Pumps

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in KSB Pumps are ranked lower than 6 (%) 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.

TPL Insurance

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in TPL Insurance are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, TPL Insurance may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with KSB Pumps and TPL Insurance

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

The idea behind KSB Pumps and TPL Insurance 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.