Correlation Between GM Breweries and Tata Consultancy

Can any of the company-specific risk be diversified away by investing in both GM Breweries and Tata Consultancy 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 Consultancy 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 Consultancy Services, you can compare the effects of market volatilities on GM Breweries and Tata Consultancy 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 Consultancy. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM Breweries and Tata Consultancy.

Diversification Opportunities for GM Breweries and Tata Consultancy

0.44

Correlation Coefficient

GM Breweries  Tata Consultancy

Very weak diversification

The 3 months correlation between GMBREW and Tata is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding GM Breweries Limited and Tata Consultancy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tata Consultancy Services 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 Consultancy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tata Consultancy Services has no effect on the direction of GM Breweries i.e., GM Breweries and Tata Consultancy go up and down completely randomly.

Pair Corralation between GM Breweries and Tata Consultancy

Assuming the 90 days trading horizon GM Breweries Limited is expected to under-perform the Tata Consultancy. In addition to that, GM Breweries is 1.54 times more volatile than Tata Consultancy Services. It trades about -0.04 of its total potential returns per unit of risk. Tata Consultancy Services is currently generating about -0.02 per unit of volatility. If you would invest  413,910  in Tata Consultancy Services on October 11, 2024 and sell it today you would lose (10,025) from holding Tata Consultancy Services or give up 2.42% of portfolio value over 90 days.

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

GM Breweries Limited  vs.  Tata Consultancy Services

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 somewhat strong basic indicators, GM Breweries is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Tata Consultancy Services

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with GM Breweries and Tata Consultancy

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

The idea behind GM Breweries Limited and Tata Consultancy Services 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.