Correlation Between Summit Materials and NetSol Technologies

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

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

Diversification Opportunities for Summit Materials and NetSol Technologies

0.68

Correlation Coefficient

Summit Materials  NetSol Technologies

Poor diversification

The 3 months correlation between Summit and NetSol is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Summit Materials and NetSol Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetSol Technologies and Summit Materials 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 Summit Materials 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 Summit Materials i.e., Summit Materials and NetSol Technologies go up and down completely randomly.

Pair Corralation between Summit Materials and NetSol Technologies

Considering the 90-day investment horizon Summit Materials is expected to generate 1.79 times less return on investment than NetSol Technologies. But when comparing it to its historical volatility, Summit Materials is 2.12 times less risky than NetSol Technologies. It trades about 0.06 of its potential returns per unit of risk. NetSol Technologies is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  230.00  in NetSol Technologies on February 11, 2024 and sell it today you would earn a total of  20.00  from holding NetSol Technologies or generate 8.7% return on investment over 90 days.

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

Summit Materials  vs.  NetSol Technologies

Summit Materials

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Materials are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Summit Materials may actually be approaching a critical reversion point that can send shares even higher in June 2024.

NetSol Technologies

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NetSol Technologies are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, NetSol Technologies may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Summit Materials and NetSol Technologies

The main advantage of trading using opposite Summit Materials and NetSol Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Summit Materials 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 Summit Materials 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.