Correlation Between NetSol Technologies and KSB Pumps

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

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

Diversification Opportunities for NetSol Technologies and KSB Pumps

0.77

Correlation Coefficient

NetSol Technologies  KSB Pumps

Poor diversification

The 3 months correlation between NetSol and KSB is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding NetSol Technologies and KSB Pumps in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KSB Pumps and NetSol Technologies 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 NetSol Technologies 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 NetSol Technologies i.e., NetSol Technologies and KSB Pumps go up and down completely randomly.

Pair Corralation between NetSol Technologies and KSB Pumps

Assuming the 90 days trading horizon NetSol Technologies is expected to generate 0.75 times more return on investment than KSB Pumps. However, NetSol Technologies is 1.33 times less risky than KSB Pumps. It trades about 0.2 of its potential returns per unit of risk. KSB Pumps is currently generating about 0.05 per unit of risk. If you would invest  12,435  in NetSol Technologies on September 14, 2024 and sell it today you would earn a total of  3,894  from holding NetSol Technologies or generate 31.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

NetSol Technologies  vs.  KSB Pumps

NetSol Technologies

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NetSol Technologies are ranked lower than 15 (%) 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.

KSB Pumps

Risk-Adjusted Performance

4 of 100

OK

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

Pair Trading with NetSol Technologies and KSB Pumps

The main advantage of trading using opposite NetSol Technologies and KSB Pumps positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NetSol Technologies 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.

The idea behind NetSol Technologies and KSB Pumps 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.