Correlation Between VA Tech and Industrial Investment

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

Diversification Opportunities for VA Tech and Industrial Investment

0.74

Correlation Coefficient

VA Tech  Industrial Investment

Poor diversification

The 3 months correlation between WABAG and Industrial is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding VA Tech Wabag and Industrial Investment Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industrial Investment 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 Industrial Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industrial Investment has no effect on the direction of VA Tech i.e., VA Tech and Industrial Investment go up and down completely randomly.

Pair Corralation between VA Tech and Industrial Investment

Assuming the 90 days trading horizon VA Tech is expected to generate 2.82 times less return on investment than Industrial Investment. In addition to that, VA Tech is 1.46 times more volatile than Industrial Investment Trust. It trades about 0.06 of its total potential returns per unit of risk. Industrial Investment Trust is currently generating about 0.24 per unit of volatility. If you would invest  27,595  in Industrial Investment Trust on September 22, 2024 and sell it today you would earn a total of  10,470  from holding Industrial Investment Trust or generate 37.94% return on investment over 90 days.

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

VA Tech Wabag  vs.  Industrial Investment Trust

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.

Industrial Investment

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial Investment Trust are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Industrial Investment unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with VA Tech and Industrial Investment

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

The idea behind VA Tech Wabag and Industrial Investment Trust 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.