Correlation Between VA Tech and Lakshmi Precision

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

Diversification Opportunities for VA Tech and Lakshmi Precision

0.77

Correlation Coefficient

VA Tech  Lakshmi Precision

Poor diversification

The 3 months correlation between WABAG and Lakshmi is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding VA Tech Wabag and Lakshmi Precision Screws in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lakshmi Precision Screws 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 Lakshmi Precision. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lakshmi Precision Screws has no effect on the direction of VA Tech i.e., VA Tech and Lakshmi Precision go up and down completely randomly.

Pair Corralation between VA Tech and Lakshmi Precision

Assuming the 90 days trading horizon VA Tech Wabag is expected to under-perform the Lakshmi Precision. In addition to that, VA Tech is 1.46 times more volatile than Lakshmi Precision Screws. It trades about -0.14 of its total potential returns per unit of risk. Lakshmi Precision Screws is currently generating about -0.01 per unit of volatility. If you would invest  560.00  in Lakshmi Precision Screws on December 2, 2024 and sell it today you would lose (21.00) from holding Lakshmi Precision Screws or give up 3.75% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

VA Tech Wabag  vs.  Lakshmi Precision Screws

VA Tech Wabag

Risk-Adjusted Performance

Very Weak

Over the last 90 days VA Tech Wabag has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental drivers remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Lakshmi Precision Screws

Risk-Adjusted Performance

Very Weak

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

Pair Trading with VA Tech and Lakshmi Precision

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

The idea behind VA Tech Wabag and Lakshmi Precision Screws 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.