Correlation Between VA Tech and HEG

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

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

Diversification Opportunities for VA Tech and HEG

0.26

Correlation Coefficient

VA Tech  HEG

Modest diversification

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

Pair Corralation between VA Tech and HEG

Assuming the 90 days trading horizon VA Tech Wabag is expected to generate 0.82 times more return on investment than HEG. However, VA Tech Wabag is 1.22 times less risky than HEG. It trades about 0.06 of its potential returns per unit of risk. HEG Limited is currently generating about 0.03 per unit of risk. If you would invest  151,050  in VA Tech Wabag on September 30, 2024 and sell it today you would earn a total of  13,570  from holding VA Tech Wabag or generate 8.98% return on investment over 90 days.

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

VA Tech Wabag  vs.  HEG Limited

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.

HEG Limited

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in HEG Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, HEG may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with VA Tech and HEG

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

The idea behind VA Tech Wabag and HEG Limited 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.