Correlation Between Dalmia Bharat and VA Tech

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

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

Diversification Opportunities for Dalmia Bharat and VA Tech

0.46

Correlation Coefficient

Dalmia Bharat  VA Tech

Very weak diversification

The 3 months correlation between Dalmia and WABAG is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Dalmia Bharat 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 Dalmia Bharat 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 Dalmia Bharat 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 Dalmia Bharat i.e., Dalmia Bharat and VA Tech go up and down completely randomly.

Pair Corralation between Dalmia Bharat and VA Tech

Assuming the 90 days trading horizon Dalmia Bharat Limited is expected to generate 0.57 times more return on investment than VA Tech. However, Dalmia Bharat Limited is 1.76 times less risky than VA Tech. It trades about -0.12 of its potential returns per unit of risk. VA Tech Wabag is currently generating about -0.23 per unit of risk. If you would invest  189,870  in Dalmia Bharat Limited on October 11, 2024 and sell it today you would lose (9,860) from holding Dalmia Bharat Limited or give up 5.19% of portfolio value over 90 days.

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

Dalmia Bharat Limited  vs.  VA Tech Wabag

Dalmia Bharat Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dalmia Bharat Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Dalmia Bharat is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

VA Tech Wabag

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VA Tech Wabag has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental drivers, VA Tech is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Dalmia Bharat and VA Tech

The main advantage of trading using opposite Dalmia Bharat and VA Tech positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dalmia Bharat 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 Dalmia Bharat 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.

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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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.