Correlation Between Infosys and Wipro Limited

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

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

Diversification Opportunities for Infosys and Wipro Limited

-0.21

Correlation Coefficient

Infosys  Wipro Limited

Very good diversification

The 3 months correlation between Infosys and Wipro is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Infosys Ltd ADR and Wipro Limited ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wipro Limited ADR and Infosys 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 Infosys Ltd ADR are associated (or correlated) with Wipro Limited. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wipro Limited ADR has no effect on the direction of Infosys i.e., Infosys and Wipro Limited go up and down completely randomly.

Pair Corralation between Infosys and Wipro Limited

Given the investment horizon of 90 days Infosys is expected to generate 19.01 times less return on investment than Wipro Limited. But when comparing it to its historical volatility, Infosys Ltd ADR is 1.35 times less risky than Wipro Limited. It trades about 0.01 of its potential returns per unit of risk. Wipro Limited ADR is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  634.00  in Wipro Limited ADR on August 31, 2024 and sell it today you would earn a total of  69.00  from holding Wipro Limited ADR or generate 10.88% return on investment over 90 days.

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

Infosys Ltd ADR  vs.  Wipro Limited ADR

Infosys Ltd ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Infosys Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Infosys is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Wipro Limited ADR

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Wipro Limited ADR are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak forward indicators, Wipro Limited may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Infosys and Wipro Limited

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

The idea behind Infosys Ltd ADR and Wipro Limited ADR 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 Search module to search for actively traded equities including funds and ETFs from over 30 global markets.