Correlation Between Vedanta and Welspun Investments

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

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

Diversification Opportunities for Vedanta and Welspun Investments

0.33

Correlation Coefficient

Vedanta  Welspun Investments

Weak diversification

The 3 months correlation between Vedanta and Welspun is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Vedanta Limited and Welspun Investments and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Welspun Investments and and Vedanta 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 Vedanta Limited are associated (or correlated) with Welspun Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Welspun Investments and has no effect on the direction of Vedanta i.e., Vedanta and Welspun Investments go up and down completely randomly.

Pair Corralation between Vedanta and Welspun Investments

Assuming the 90 days trading horizon Vedanta Limited is expected to under-perform the Welspun Investments. But the stock apears to be less risky and, when comparing its historical volatility, Vedanta Limited is 1.66 times less risky than Welspun Investments. The stock trades about -0.08 of its potential returns per unit of risk. The Welspun Investments and is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  95,790  in Welspun Investments and on September 28, 2024 and sell it today you would lose (3,735) from holding Welspun Investments and or give up 3.9% of portfolio value over 90 days.

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

Vedanta Limited  vs.  Welspun Investments and

Vedanta Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vedanta Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Welspun Investments and

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Welspun Investments and has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong forward indicators, Welspun Investments is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vedanta and Welspun Investments

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

The idea behind Vedanta Limited and Welspun Investments and 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.