Correlation Between KSB Pumps and Engro Fertilizers

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

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

Diversification Opportunities for KSB Pumps and Engro Fertilizers

0.66

Correlation Coefficient

KSB Pumps  Engro Fertilizers

Poor diversification

The 3 months correlation between KSB and Engro is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding KSB Pumps and Engro Fertilizers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Engro Fertilizers and KSB Pumps 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 KSB Pumps are associated (or correlated) with Engro Fertilizers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Engro Fertilizers has no effect on the direction of KSB Pumps i.e., KSB Pumps and Engro Fertilizers go up and down completely randomly.

Pair Corralation between KSB Pumps and Engro Fertilizers

Assuming the 90 days trading horizon KSB Pumps is expected to generate 1.55 times more return on investment than Engro Fertilizers. However, KSB Pumps is 1.55 times more volatile than Engro Fertilizers. It trades about 0.18 of its potential returns per unit of risk. Engro Fertilizers is currently generating about 0.09 per unit of risk. If you would invest  13,142  in KSB Pumps on September 27, 2024 and sell it today you would earn a total of  1,574  from holding KSB Pumps or generate 11.98% return on investment over 90 days.

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

KSB Pumps  vs.  Engro Fertilizers

KSB Pumps

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in KSB Pumps are ranked lower than 5 (%) 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.

Engro Fertilizers

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Engro Fertilizers are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, Engro Fertilizers may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with KSB Pumps and Engro Fertilizers

The main advantage of trading using opposite KSB Pumps and Engro Fertilizers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KSB Pumps position performs unexpectedly, Engro Fertilizers 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 Engro Fertilizers will offset losses from the drop in Engro Fertilizers' long position.

The idea behind KSB Pumps and Engro Fertilizers 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.