Correlation Between Varun Beverages and VA Tech
Can any of the company-specific risk be diversified away by investing in both Varun Beverages and VA Tech 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 Varun Beverages and VA Tech into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Varun Beverages Limited and VA Tech Wabag, you can compare the effects of market volatilities on Varun Beverages and VA Tech 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 Varun Beverages with a short position of VA Tech. Check out your portfolio center. Please also check ongoing floating volatility patterns of Varun Beverages and VA Tech.
Diversification Opportunities for Varun Beverages and VA Tech
-0.32 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Varun and WABAG is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Varun Beverages Limited and VA Tech Wabag in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VA Tech Wabag and Varun Beverages 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 Varun Beverages Limited are associated (or correlated) with VA Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VA Tech Wabag has no effect on the direction of Varun Beverages i.e., Varun Beverages and VA Tech go up and down completely randomly.
Pair Corralation between Varun Beverages and VA Tech
Assuming the 90 days trading horizon Varun Beverages is expected to generate 4.8 times less return on investment than VA Tech. But when comparing it to its historical volatility, Varun Beverages Limited is 1.23 times less risky than VA Tech. It trades about 0.02 of its potential returns per unit of risk. VA Tech Wabag is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 151,050 in VA Tech Wabag on August 29, 2024 and sell it today you would earn a total of 17,805 from holding VA Tech Wabag or generate 11.79% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Varun Beverages Limited vs. VA Tech Wabag
Performance |
| Timeline |
| Varun Beverages |
| VA Tech Wabag |
Varun Beverages and VA Tech Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Varun Beverages and VA Tech
The main advantage of trading using opposite Varun Beverages and VA Tech positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Varun Beverages position performs unexpectedly, VA Tech 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 VA Tech will offset losses from the drop in VA Tech's long position.The idea behind Varun Beverages Limited and VA Tech Wabag 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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Check out your portfolio center.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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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