Correlation Between Alkali Metals and VA Tech

Can any of the company-specific risk be diversified away by investing in both Alkali Metals and VA Tech 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 Alkali Metals and VA Tech into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Alkali Metals Limited and VA Tech Wabag, you can compare the effects of market volatilities on Alkali Metals and VA Tech 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 Alkali Metals with a short position of VA Tech. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alkali Metals and VA Tech.

Diversification Opportunities for Alkali Metals and VA Tech

0.01

Correlation Coefficient

Alkali Metals  VA Tech

Significant diversification

The 3 months correlation between Alkali and WABAG is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Alkali Metals Limited and VA Tech Wabag in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VA Tech Wabag and Alkali Metals 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 Alkali Metals Limited are associated (or correlated) with VA Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VA Tech Wabag has no effect on the direction of Alkali Metals i.e., Alkali Metals and VA Tech go up and down completely randomly.

Pair Corralation between Alkali Metals and VA Tech

Assuming the 90 days trading horizon Alkali Metals is expected to generate 7.99 times less return on investment than VA Tech. But when comparing it to its historical volatility, Alkali Metals Limited is 1.61 times less risky than VA Tech. It trades about 0.02 of its potential returns per unit of risk. VA Tech Wabag is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  147,215  in VA Tech Wabag on October 5, 2024 and sell it today you would earn a total of  19,415  from holding VA Tech Wabag or generate 13.19% return on investment over 90 days.

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

Alkali Metals Limited  vs.  VA Tech Wabag

Alkali Metals Limited

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Alkali Metals Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Alkali Metals is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

VA Tech Wabag

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in VA Tech Wabag are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental drivers, VA Tech displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alkali Metals and VA Tech

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

The idea behind Alkali Metals Limited and VA Tech Wabag 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.