Correlation Between Indian Metals and VA Tech

Can any of the company-specific risk be diversified away by investing in both Indian 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 Indian 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 Indian Metals Ferro and VA Tech Wabag, you can compare the effects of market volatilities on Indian 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 Indian Metals with a short position of VA Tech. Check out your portfolio center. Please also check ongoing floating volatility patterns of Indian Metals and VA Tech.

Diversification Opportunities for Indian Metals and VA Tech

0.02

Correlation Coefficient

Indian Metals  VA Tech

Significant diversification

The 3 months correlation between Indian and WABAG is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Indian Metals Ferro 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 Indian 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 Indian Metals Ferro 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 Indian Metals i.e., Indian Metals and VA Tech go up and down completely randomly.

Pair Corralation between Indian Metals and VA Tech

Assuming the 90 days trading horizon Indian Metals is expected to generate 1.07 times less return on investment than VA Tech. But when comparing it to its historical volatility, Indian Metals Ferro is 1.01 times less risky than VA Tech. It trades about 0.1 of its potential returns per unit of risk. VA Tech Wabag is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  48,475  in VA Tech Wabag on October 24, 2024 and sell it today you would earn a total of  99,645  from holding VA Tech Wabag or generate 205.56% return on investment over 90 days.

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

Indian Metals Ferro  vs.  VA Tech Wabag

Indian Metals Ferro

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Indian Metals Ferro are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Indian Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

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 latest unfluctuating performance, the Stock's fundamental drivers remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Indian Metals and VA Tech

The main advantage of trading using opposite Indian Metals and VA Tech positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Indian 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 Indian Metals Ferro 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.