Correlation Between Air Link and KSB Pumps

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

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

Diversification Opportunities for Air Link and KSB Pumps

0.01

Correlation Coefficient

Air Link  KSB Pumps

Significant diversification

The 3 months correlation between Air and KSB is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Air Link Communication and KSB Pumps in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KSB Pumps and Air Link 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 Air Link Communication 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 Air Link i.e., Air Link and KSB Pumps go up and down completely randomly.

Pair Corralation between Air Link and KSB Pumps

Assuming the 90 days trading horizon Air Link Communication is expected to under-perform the KSB Pumps. In addition to that, Air Link is 1.02 times more volatile than KSB Pumps. It trades about -0.15 of its total potential returns per unit of risk. KSB Pumps is currently generating about 0.06 per unit of volatility. If you would invest  15,054  in KSB Pumps on December 30, 2024 and sell it today you would earn a total of  914.00  from holding KSB Pumps or generate 6.07% return on investment over 90 days.

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

Air Link Communication  vs.  KSB Pumps

Air Link Communication

Risk-Adjusted Performance

Very Weak

Over the last 90 days Air Link Communication has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

KSB Pumps

Risk-Adjusted Performance

Insignificant

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 April 2025.

Pair Trading with Air Link and KSB Pumps

The main advantage of trading using opposite Air Link and KSB Pumps positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air Link 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 Air Link Communication 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.