Correlation Between GM Breweries and Tata Communications

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

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

Diversification Opportunities for GM Breweries and Tata Communications

0.75

Correlation Coefficient

GM Breweries  Tata Communications

Poor diversification

The 3 months correlation between GMBREW and Tata is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding GM Breweries Limited and Tata Communications Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tata Communications and GM Breweries 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 GM Breweries Limited are associated (or correlated) with Tata Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tata Communications has no effect on the direction of GM Breweries i.e., GM Breweries and Tata Communications go up and down completely randomly.

Pair Corralation between GM Breweries and Tata Communications

Assuming the 90 days trading horizon GM Breweries Limited is expected to generate 1.21 times more return on investment than Tata Communications. However, GM Breweries is 1.21 times more volatile than Tata Communications Limited. It trades about 0.01 of its potential returns per unit of risk. Tata Communications Limited is currently generating about -0.04 per unit of risk. If you would invest  80,345  in GM Breweries Limited on September 28, 2024 and sell it today you would earn a total of  5.00  from holding GM Breweries Limited or generate 0.01% return on investment over 90 days.

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

GM Breweries Limited  vs.  Tata Communications Limited

GM Breweries Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GM Breweries Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Tata Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tata Communications Limited 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 basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with GM Breweries and Tata Communications

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

The idea behind GM Breweries Limited and Tata Communications 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.