Correlation Between VA Tech and Ravi Kumar

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

Diversification Opportunities for VA Tech and Ravi Kumar

0.6

Correlation Coefficient

VA Tech  Ravi Kumar

Poor diversification

The 3 months correlation between WABAG and Ravi is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding VA Tech Wabag and Ravi Kumar Distilleries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ravi Kumar Distilleries 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 Ravi Kumar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ravi Kumar Distilleries has no effect on the direction of VA Tech i.e., VA Tech and Ravi Kumar go up and down completely randomly.

Pair Corralation between VA Tech and Ravi Kumar

Assuming the 90 days trading horizon VA Tech Wabag is expected to generate 1.16 times more return on investment than Ravi Kumar. However, VA Tech is 1.16 times more volatile than Ravi Kumar Distilleries. It trades about -0.04 of its potential returns per unit of risk. Ravi Kumar Distilleries is currently generating about -0.06 per unit of risk. If you would invest  164,745  in VA Tech Wabag on December 30, 2024 and sell it today you would lose (19,280) from holding VA Tech Wabag or give up 11.7% of portfolio value over 90 days.

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

VA Tech Wabag  vs.  Ravi Kumar Distilleries

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 latest fragile performance, the Stock's fundamental drivers remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Ravi Kumar Distilleries

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ravi Kumar Distilleries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with VA Tech and Ravi Kumar

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

The idea behind VA Tech Wabag and Ravi Kumar Distilleries 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 Global Correlations module to find global opportunities by holding instruments from different markets.