Correlation Between VA Tech and GACM Technologies

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

Diversification Opportunities for VA Tech and GACM Technologies

-0.68

Correlation Coefficient

VA Tech  GACM Technologies

Excellent diversification

The 3 months correlation between WABAG and GACM is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding VA Tech Wabag and GACM Technologies Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GACM Technologies 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 GACM Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GACM Technologies has no effect on the direction of VA Tech i.e., VA Tech and GACM Technologies go up and down completely randomly.

Pair Corralation between VA Tech and GACM Technologies

Assuming the 90 days trading horizon VA Tech Wabag is expected to generate 0.95 times more return on investment than GACM Technologies. However, VA Tech Wabag is 1.06 times less risky than GACM Technologies. It trades about 0.16 of its potential returns per unit of risk. GACM Technologies Limited is currently generating about -0.13 per unit of risk. If you would invest  139,235  in VA Tech Wabag on September 14, 2024 and sell it today you would earn a total of  43,135  from holding VA Tech Wabag or generate 30.98% return on investment over 90 days.

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

VA Tech Wabag  vs.  GACM Technologies Limited

VA Tech Wabag

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in VA Tech Wabag are ranked lower than 12 (%) 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.

GACM Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GACM Technologies Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with VA Tech and GACM Technologies

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

The idea behind VA Tech Wabag and GACM Technologies 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.