Correlation Between Oil and NetSol Technologies

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

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

Diversification Opportunities for Oil and NetSol Technologies

0.59

Correlation Coefficient

Oil  NetSol Technologies

Very weak diversification

The 3 months correlation between Oil and NetSol is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Oil and Gas and NetSol Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetSol Technologies and Oil 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 Oil and Gas 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 Oil i.e., Oil and NetSol Technologies go up and down completely randomly.

Pair Corralation between Oil and NetSol Technologies

Assuming the 90 days trading horizon Oil is expected to generate 5.45 times less return on investment than NetSol Technologies. But when comparing it to its historical volatility, Oil and Gas is 1.11 times less risky than NetSol Technologies. It trades about 0.07 of its potential returns per unit of risk. NetSol Technologies is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest  13,032  in NetSol Technologies on September 12, 2024 and sell it today you would earn a total of  3,320  from holding NetSol Technologies or generate 25.48% return on investment over 90 days.

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

Oil and Gas  vs.  NetSol Technologies

Oil and Gas

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Oil and Gas are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Oil sustained solid returns over the last few months and may actually be approaching a breakup point.

NetSol Technologies

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NetSol Technologies are ranked lower than 11 (%) 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 Oil and NetSol Technologies

The main advantage of trading using opposite Oil and NetSol Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Oil 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 Oil and Gas 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.