Correlation Between Shadab Textile and NetSol Technologies

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

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

Diversification Opportunities for Shadab Textile and NetSol Technologies

-0.67

Correlation Coefficient

Shadab Textile  NetSol Technologies

Excellent diversification

The 3 months correlation between Shadab and NetSol is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Shadab Textile Mills and NetSol Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetSol Technologies and Shadab Textile 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 Shadab Textile Mills 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 Shadab Textile i.e., Shadab Textile and NetSol Technologies go up and down completely randomly.

Pair Corralation between Shadab Textile and NetSol Technologies

Assuming the 90 days trading horizon Shadab Textile Mills is expected to generate 1.76 times more return on investment than NetSol Technologies. However, Shadab Textile is 1.76 times more volatile than NetSol Technologies. It trades about 0.04 of its potential returns per unit of risk. NetSol Technologies is currently generating about -0.03 per unit of risk. If you would invest  2,159  in Shadab Textile Mills on December 24, 2024 and sell it today you would earn a total of  111.00  from holding Shadab Textile Mills or generate 5.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

Shadab Textile Mills  vs.  NetSol Technologies

Shadab Textile Mills

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shadab Textile Mills are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shadab Textile may actually be approaching a critical reversion point that can send shares even higher in April 2025.

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 Shadab Textile and NetSol Technologies

The main advantage of trading using opposite Shadab Textile and NetSol Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shadab Textile 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 Shadab Textile Mills 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.