Correlation Between ITC and WAB

Can any of the company-specific risk be diversified away by investing in both ITC and WAB 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 ITC and WAB into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ITC and WAB, you can compare the effects of market volatilities on ITC and WAB 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 ITC with a short position of WAB. Check out your portfolio center. Please also check ongoing floating volatility patterns of ITC and WAB.

Diversification Opportunities for ITC and WAB

-0.1

Correlation Coefficient

ITC  WAB

Good diversification

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

Pair Corralation between ITC and WAB

Assuming the 90 days trading horizon ITC is expected to generate 57.69 times less return on investment than WAB. But when comparing it to its historical volatility, ITC is 13.87 times less risky than WAB. It trades about 0.01 of its potential returns per unit of risk. WAB is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  0.00  in WAB on February 7, 2024 and sell it today you would earn a total of  0.03  from holding WAB or generate 4266.67% return on investment over 90 days.

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

ITC  vs.  WAB

ITC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ITC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, ITC is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

WAB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WAB has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, WAB is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with ITC and WAB

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

The idea behind ITC and WAB 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.