Correlation Between National Foods and KSB Pumps

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

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

Diversification Opportunities for National Foods and KSB Pumps

0.61

Correlation Coefficient

National Foods  KSB Pumps

Poor diversification

The 3 months correlation between National and KSB is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding National Foods and KSB Pumps in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KSB Pumps and National Foods 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 National Foods 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 National Foods i.e., National Foods and KSB Pumps go up and down completely randomly.

Pair Corralation between National Foods and KSB Pumps

Assuming the 90 days trading horizon National Foods is expected to generate 0.8 times more return on investment than KSB Pumps. However, National Foods is 1.25 times less risky than KSB Pumps. It trades about 0.11 of its potential returns per unit of risk. KSB Pumps is currently generating about 0.06 per unit of risk. If you would invest  19,312  in National Foods on December 30, 2024 and sell it today you would earn a total of  2,208  from holding National Foods or generate 11.43% return on investment over 90 days.

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

National Foods  vs.  KSB Pumps

National Foods

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in National Foods are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, National Foods may actually be approaching a critical reversion point that can send shares even higher in April 2025.

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 National Foods and KSB Pumps

The main advantage of trading using opposite National Foods and KSB Pumps positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Foods 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 National Foods 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.

Check out your portfolio center.

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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.