Correlation Between VA Tech and Agro Tech

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

Diversification Opportunities for VA Tech and Agro Tech

0.82
  Correlation Coefficient

Very poor diversification

The 3 months correlation between WABAG and Agro is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding VA Tech Wabag and Agro Tech Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Agro Tech Foods 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 Agro Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Agro Tech Foods has no effect on the direction of VA Tech i.e., VA Tech and Agro Tech go up and down completely randomly.

Pair Corralation between VA Tech and Agro Tech

Assuming the 90 days trading horizon VA Tech Wabag is expected to generate 1.2 times more return on investment than Agro Tech. However, VA Tech is 1.2 times more volatile than Agro Tech Foods. It trades about 0.11 of its potential returns per unit of risk. Agro Tech Foods is currently generating about 0.0 per unit of risk. If you would invest  34,580  in VA Tech Wabag on November 27, 2024 and sell it today you would earn a total of  105,735  from holding VA Tech Wabag or generate 305.77% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy99.79%
ValuesDaily Returns

VA Tech Wabag  vs.  Agro Tech Foods

 Performance 
       Timeline  
VA Tech Wabag 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
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 weak performance in the last few months, the Stock's fundamental drivers remain very healthy which may send shares a bit higher in March 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.
Agro Tech Foods 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Agro Tech Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in March 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

VA Tech and Agro Tech Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with VA Tech and Agro Tech

The main advantage of trading using opposite VA Tech and Agro Tech positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VA Tech position performs unexpectedly, Agro 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 Agro Tech will offset losses from the drop in Agro Tech's long position.
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The idea behind VA Tech Wabag and Agro Tech Foods 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 Transaction History module to view history of all your transactions and understand their impact on performance.

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