Correlation Between Indian Overseas and Tata Communications

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

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

Diversification Opportunities for Indian Overseas and Tata Communications

0.62

Correlation Coefficient

Indian Overseas  Tata Communications

Poor diversification

The 3 months correlation between Indian and Tata is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Indian Overseas Bank and Tata Communications Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tata Communications and Indian Overseas 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 Indian Overseas Bank 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 Indian Overseas i.e., Indian Overseas and Tata Communications go up and down completely randomly.

Pair Corralation between Indian Overseas and Tata Communications

Assuming the 90 days trading horizon Indian Overseas Bank is expected to generate 1.39 times more return on investment than Tata Communications. However, Indian Overseas is 1.39 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 -0.08 per unit of risk. If you would invest  5,945  in Indian Overseas Bank on September 14, 2024 and sell it today you would lose (177.00) from holding Indian Overseas Bank or give up 2.98% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

Indian Overseas Bank  vs.  Tata Communications Limited

Indian Overseas Bank

Risk-Adjusted Performance

0 of 100

Very Weak

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

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 latest uncertain performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Indian Overseas and Tata Communications

The main advantage of trading using opposite Indian Overseas and Tata Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Indian Overseas 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 Indian Overseas Bank 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.