Correlation Between Gujarat Lease and Tata Investment

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

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

Diversification Opportunities for Gujarat Lease and Tata Investment

0.39

Correlation Coefficient

Gujarat Lease  Tata Investment

Weak diversification

The 3 months correlation between Gujarat and Tata is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Gujarat Lease Financing and Tata Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tata Investment and Gujarat Lease 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 Gujarat Lease Financing are associated (or correlated) with Tata Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tata Investment has no effect on the direction of Gujarat Lease i.e., Gujarat Lease and Tata Investment go up and down completely randomly.

Pair Corralation between Gujarat Lease and Tata Investment

Assuming the 90 days trading horizon Gujarat Lease Financing is expected to under-perform the Tata Investment. But the stock apears to be less risky and, when comparing its historical volatility, Gujarat Lease Financing is 1.01 times less risky than Tata Investment. The stock trades about -0.08 of its potential returns per unit of risk. The Tata Investment is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  644,475  in Tata Investment on October 8, 2024 and sell it today you would earn a total of  44,555  from holding Tata Investment or generate 6.91% return on investment over 90 days.

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

Gujarat Lease Financing  vs.  Tata Investment

Gujarat Lease Financing

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Gujarat Lease Financing are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Gujarat Lease may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Tata Investment

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tata Investment are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Tata Investment may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Gujarat Lease and Tata Investment

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

The idea behind Gujarat Lease Financing and Tata Investment 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.