Correlation Between Servotech Power and VA Tech

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

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

Diversification Opportunities for Servotech Power and VA Tech

-0.06

Correlation Coefficient

Servotech Power  VA Tech

Good diversification

The 3 months correlation between Servotech and WABAG is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Servotech Power Systems 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 Servotech Power 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 Servotech Power Systems 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 Servotech Power i.e., Servotech Power and VA Tech go up and down completely randomly.

Pair Corralation between Servotech Power and VA Tech

Assuming the 90 days trading horizon Servotech Power Systems is expected to under-perform the VA Tech. But the stock apears to be less risky and, when comparing its historical volatility, Servotech Power Systems is 1.16 times less risky than VA Tech. The stock trades about 0.0 of its potential returns per unit of risk. The VA Tech Wabag is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  160,565  in VA Tech Wabag on September 22, 2024 and sell it today you would earn a total of  1,575  from holding VA Tech Wabag or generate 0.98% return on investment over 90 days.

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

Servotech Power Systems  vs.  VA Tech Wabag

Servotech Power Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Servotech Power Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

VA Tech Wabag

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in VA Tech Wabag are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady fundamental drivers, VA Tech may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Servotech Power and VA Tech

The main advantage of trading using opposite Servotech Power and VA Tech positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Servotech Power 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 Servotech Power Systems 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.