Correlation Between VA Tech and Maithan Alloys

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

Diversification Opportunities for VA Tech and Maithan Alloys

-0.1

Correlation Coefficient

VA Tech  Maithan Alloys

Good diversification

The 3 months correlation between WABAG and Maithan is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding VA Tech Wabag and Maithan Alloys Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Maithan Alloys 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 Maithan Alloys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Maithan Alloys has no effect on the direction of VA Tech i.e., VA Tech and Maithan Alloys go up and down completely randomly.

Pair Corralation between VA Tech and Maithan Alloys

Assuming the 90 days trading horizon VA Tech Wabag is expected to generate 1.31 times more return on investment than Maithan Alloys. However, VA Tech is 1.31 times more volatile than Maithan Alloys Limited. It trades about 0.13 of its potential returns per unit of risk. Maithan Alloys Limited is currently generating about 0.02 per unit of risk. If you would invest  32,940  in VA Tech Wabag on September 28, 2024 and sell it today you would earn a total of  131,680  from holding VA Tech Wabag or generate 399.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.18%
Values	Daily Returns

VA Tech Wabag  vs.  Maithan Alloys Limited

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.

Maithan Alloys

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Maithan Alloys Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Maithan Alloys is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with VA Tech and Maithan Alloys

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

The idea behind VA Tech Wabag and Maithan Alloys 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.