Correlation Between Adamjee Insurance and KSB Pumps

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

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

Diversification Opportunities for Adamjee Insurance and KSB Pumps

0.81

Correlation Coefficient

Adamjee Insurance  KSB Pumps

Very poor diversification

The 3 months correlation between Adamjee and KSB is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Adamjee Insurance and KSB Pumps in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KSB Pumps and Adamjee 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 Adamjee Insurance 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 Adamjee Insurance i.e., Adamjee Insurance and KSB Pumps go up and down completely randomly.

Pair Corralation between Adamjee Insurance and KSB Pumps

Assuming the 90 days trading horizon Adamjee Insurance is expected to generate 1.1 times more return on investment than KSB Pumps. However, Adamjee Insurance is 1.1 times more volatile than KSB Pumps. It trades about 0.14 of its potential returns per unit of risk. KSB Pumps is currently generating about 0.08 per unit of risk. If you would invest  3,908  in Adamjee Insurance on October 24, 2024 and sell it today you would earn a total of  1,124  from holding Adamjee Insurance or generate 28.76% return on investment over 90 days.

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

Adamjee Insurance  vs.  KSB Pumps

Adamjee Insurance

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Adamjee Insurance are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Adamjee Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.

KSB Pumps

Risk-Adjusted Performance

6 of 100

Modest

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.

Pair Trading with Adamjee Insurance and KSB Pumps

The main advantage of trading using opposite Adamjee Insurance and KSB Pumps positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Adamjee Insurance 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 Adamjee Insurance 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .