Correlation Between TPL Insurance and KSB Pumps

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

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

Diversification Opportunities for TPL Insurance and KSB Pumps

0.64

Correlation Coefficient

TPL Insurance  KSB Pumps

Poor diversification

The 3 months correlation between TPL and KSB is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding TPL Insurance and KSB Pumps in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KSB Pumps and TPL Insurance 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 TPL Insurance 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 TPL Insurance i.e., TPL Insurance and KSB Pumps go up and down completely randomly.

Pair Corralation between TPL Insurance and KSB Pumps

Assuming the 90 days trading horizon TPL Insurance is expected to generate 1.41 times less return on investment than KSB Pumps. In addition to that, TPL Insurance is 1.11 times more volatile than KSB Pumps. It trades about 0.11 of its total potential returns per unit of risk. KSB Pumps is currently generating about 0.18 per unit of volatility. If you would invest  12,675  in KSB Pumps on October 6, 2024 and sell it today you would earn a total of  3,036  from holding KSB Pumps or generate 23.95% return on investment over 90 days.

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

TPL Insurance  vs.  KSB Pumps

TPL Insurance

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in TPL Insurance are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, TPL Insurance may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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.

Pair Trading with TPL Insurance and KSB Pumps

The main advantage of trading using opposite TPL Insurance and KSB Pumps positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TPL Insurance 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 TPL Insurance 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.