Correlation Between KSB Pumps and Bawany Air

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

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

Diversification Opportunities for KSB Pumps and Bawany Air

0.21

Correlation Coefficient

KSB Pumps  Bawany Air

Modest diversification

The 3 months correlation between KSB and Bawany is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding KSB Pumps and Bawany Air Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bawany Air Products 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 Bawany Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bawany Air Products has no effect on the direction of KSB Pumps i.e., KSB Pumps and Bawany Air go up and down completely randomly.

Pair Corralation between KSB Pumps and Bawany Air

Assuming the 90 days trading horizon KSB Pumps is expected to generate 0.81 times more return on investment than Bawany Air. However, KSB Pumps is 1.23 times less risky than Bawany Air. It trades about 0.08 of its potential returns per unit of risk. Bawany Air Products is currently generating about 0.06 per unit of risk. If you would invest  14,451  in KSB Pumps on September 17, 2024 and sell it today you would earn a total of  672.00  from holding KSB Pumps or generate 4.65% return on investment over 90 days.

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

KSB Pumps  vs.  Bawany Air Products

KSB Pumps

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in KSB Pumps are ranked lower than 5 (%) 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.

Bawany Air Products

Risk-Adjusted Performance

3 of 100

Weak

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

Pair Trading with KSB Pumps and Bawany Air

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

The idea behind KSB Pumps and Bawany Air Products 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.