Correlation Between Industrial Investment and Tata Communications

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

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

Diversification Opportunities for Industrial Investment and Tata Communications

0.47

Correlation Coefficient

Industrial Investment  Tata Communications

Very weak diversification

The 3 months correlation between Industrial and Tata is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Industrial Investment Trust and Tata Communications Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tata Communications and Industrial Investment 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 Industrial Investment Trust 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 Industrial Investment i.e., Industrial Investment and Tata Communications go up and down completely randomly.

Pair Corralation between Industrial Investment and Tata Communications

Assuming the 90 days trading horizon Industrial Investment Trust is expected to under-perform the Tata Communications. In addition to that, Industrial Investment is 1.6 times more volatile than Tata Communications Limited. It trades about -0.17 of its total potential returns per unit of risk. Tata Communications Limited is currently generating about -0.03 per unit of volatility. If you would invest  171,015  in Tata Communications Limited on December 27, 2024 and sell it today you would lose (10,520) from holding Tata Communications Limited or give up 6.15% of portfolio value over 90 days.

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

Industrial Investment Trust  vs.  Tata Communications Limited

Industrial Investment

Risk-Adjusted Performance

Very Weak

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

Tata Communications

Risk-Adjusted Performance

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 very healthy basic indicators, Tata Communications is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Industrial Investment and Tata Communications

The main advantage of trading using opposite Industrial Investment and Tata Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Industrial Investment 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 Industrial Investment Trust 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.