Correlation Between Mughal Iron and KSB Pumps

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

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

Diversification Opportunities for Mughal Iron and KSB Pumps

0.06

Correlation Coefficient

Mughal Iron  KSB Pumps

Significant diversification

The 3 months correlation between Mughal and KSB is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Mughal Iron Steel and KSB Pumps in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KSB Pumps and Mughal Iron 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 Mughal Iron Steel 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 Mughal Iron i.e., Mughal Iron and KSB Pumps go up and down completely randomly.

Pair Corralation between Mughal Iron and KSB Pumps

Assuming the 90 days trading horizon Mughal Iron Steel is expected to under-perform the KSB Pumps. But the stock apears to be less risky and, when comparing its historical volatility, Mughal Iron Steel is 1.01 times less risky than KSB Pumps. The stock trades about -0.02 of its potential returns per unit of risk. The KSB Pumps is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  13,992  in KSB Pumps on September 14, 2024 and sell it today you would earn a total of  2,106  from holding KSB Pumps or generate 15.05% return on investment over 90 days.

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

Mughal Iron Steel  vs.  KSB Pumps

Mughal Iron Steel

Risk-Adjusted Performance

0 of 100

Very Weak

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

KSB Pumps

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KSB Pumps are ranked lower than 7 (%) 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 Mughal Iron and KSB Pumps

The main advantage of trading using opposite Mughal Iron and KSB Pumps positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mughal Iron 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 Mughal Iron Steel 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.