Correlation Between Vestas Wind and Otis Worldwide

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

By analyzing existing cross correlation between Vestas Wind Systems and Otis Worldwide Corp, you can compare the effects of market volatilities on Vestas Wind and Otis Worldwide 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 Vestas Wind with a short position of Otis Worldwide. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vestas Wind and Otis Worldwide.

Diversification Opportunities for Vestas Wind and Otis Worldwide

0.26

Correlation Coefficient

Vestas Wind  Otis Worldwide

Modest diversification

The 3 months correlation between Vestas and Otis is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Vestas Wind Systems and Otis Worldwide Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Otis Worldwide Corp and Vestas Wind 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 Vestas Wind Systems are associated (or correlated) with Otis Worldwide. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Otis Worldwide Corp has no effect on the direction of Vestas Wind i.e., Vestas Wind and Otis Worldwide go up and down completely randomly.

Pair Corralation between Vestas Wind and Otis Worldwide

Assuming the 90 days trading horizon Vestas Wind is expected to generate 1.64 times less return on investment than Otis Worldwide. In addition to that, Vestas Wind is 2.35 times more volatile than Otis Worldwide Corp. It trades about 0.02 of its total potential returns per unit of risk. Otis Worldwide Corp is currently generating about 0.09 per unit of volatility. If you would invest  8,884  in Otis Worldwide Corp on December 30, 2024 and sell it today you would earn a total of  574.00  from holding Otis Worldwide Corp or generate 6.46% return on investment over 90 days.

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

Vestas Wind Systems  vs.  Otis Worldwide Corp

Vestas Wind Systems

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vestas Wind Systems are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental drivers, Vestas Wind is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Otis Worldwide Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Otis Worldwide Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Otis Worldwide may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Vestas Wind and Otis Worldwide

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

The idea behind Vestas Wind Systems and Otis Worldwide Corp 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.