Correlation Between KSB Pumps and Nestle Pakistan

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

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

Diversification Opportunities for KSB Pumps and Nestle Pakistan

0.04

Correlation Coefficient

KSB Pumps  Nestle Pakistan

Significant diversification

The 3 months correlation between KSB and Nestle is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding KSB Pumps and Nestle Pakistan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestle Pakistan 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 Nestle Pakistan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nestle Pakistan has no effect on the direction of KSB Pumps i.e., KSB Pumps and Nestle Pakistan go up and down completely randomly.

Pair Corralation between KSB Pumps and Nestle Pakistan

Assuming the 90 days trading horizon KSB Pumps is expected to generate 3.81 times more return on investment than Nestle Pakistan. However, KSB Pumps is 3.81 times more volatile than Nestle Pakistan. It trades about 0.12 of its potential returns per unit of risk. Nestle Pakistan is currently generating about -0.05 per unit of risk. If you would invest  12,570  in KSB Pumps on September 5, 2024 and sell it today you would earn a total of  2,798  from holding KSB Pumps or generate 22.26% return on investment over 90 days.

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

KSB Pumps  vs.  Nestle Pakistan

KSB Pumps

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KSB Pumps are ranked lower than 9 (%) 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.

Nestle Pakistan

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with KSB Pumps and Nestle Pakistan

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

The idea behind KSB Pumps and Nestle Pakistan 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.