Correlation Between Habib Bank and NetSol Technologies

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

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

Diversification Opportunities for Habib Bank and NetSol Technologies

0.85

Correlation Coefficient

Habib Bank  NetSol Technologies

Very poor diversification

The 3 months correlation between Habib and NetSol is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Habib Bank and NetSol Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetSol Technologies and Habib Bank 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 Habib Bank 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 Habib Bank i.e., Habib Bank and NetSol Technologies go up and down completely randomly.

Pair Corralation between Habib Bank and NetSol Technologies

Assuming the 90 days trading horizon Habib Bank is expected to generate 0.81 times more return on investment than NetSol Technologies. However, Habib Bank is 1.24 times less risky than NetSol Technologies. It trades about 0.0 of its potential returns per unit of risk. NetSol Technologies is currently generating about -0.03 per unit of risk. If you would invest  15,401  in Habib Bank on December 24, 2024 and sell it today you would lose (167.00) from holding Habib Bank or give up 1.08% of portfolio value over 90 days.

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

Habib Bank  vs.  NetSol Technologies

Habib Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Habib Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Habib Bank is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

NetSol Technologies

Risk-Adjusted Performance

Very Weak

Over the last 90 days NetSol Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, NetSol Technologies is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Habib Bank and NetSol Technologies

The main advantage of trading using opposite Habib Bank and NetSol Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Habib Bank 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 Habib Bank 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.