Correlation Between VA Tech and Home First

Can any of the company-specific risk be diversified away by investing in both VA Tech and Home First 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 Home First 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 Home First Finance, you can compare the effects of market volatilities on VA Tech and Home First 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 Home First. Check out your portfolio center. Please also check ongoing floating volatility patterns of VA Tech and Home First.

Diversification Opportunities for VA Tech and Home First

-0.26

Correlation Coefficient

VA Tech  Home First

Very good diversification

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

Pair Corralation between VA Tech and Home First

Assuming the 90 days trading horizon VA Tech Wabag is expected to generate 1.04 times more return on investment than Home First. However, VA Tech is 1.04 times more volatile than Home First Finance. It trades about 0.2 of its potential returns per unit of risk. Home First Finance is currently generating about -0.03 per unit of risk. If you would invest  126,100  in VA Tech Wabag on September 2, 2024 and sell it today you would earn a total of  53,390  from holding VA Tech Wabag or generate 42.34% return on investment over 90 days.

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

VA Tech Wabag  vs.  Home First Finance

VA Tech Wabag

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in VA Tech Wabag are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental drivers, VA Tech displayed solid returns over the last few months and may actually be approaching a breakup point.

Home First Finance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Home First Finance has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Home First is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with VA Tech and Home First

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

The idea behind VA Tech Wabag and Home First Finance 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..