Correlation Between Linc and Tata Consultancy

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

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

Diversification Opportunities for Linc and Tata Consultancy

0.46

Correlation Coefficient

Linc  Tata Consultancy

Very weak diversification

The 3 months correlation between Linc and Tata is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Linc 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 Linc 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 Linc 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 Linc i.e., Linc and Tata Consultancy go up and down completely randomly.

Pair Corralation between Linc and Tata Consultancy

Assuming the 90 days trading horizon Linc Limited is expected to generate 1.84 times more return on investment than Tata Consultancy. However, Linc is 1.84 times more volatile than Tata Consultancy Services. It trades about 0.37 of its potential returns per unit of risk. Tata Consultancy Services is currently generating about 0.25 per unit of risk. If you would invest  61,860  in Linc Limited on September 19, 2024 and sell it today you would earn a total of  14,320  from holding Linc Limited or generate 23.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.65%
Values	Daily Returns

Linc Limited  vs.  Tata Consultancy Services

Linc Limited

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Linc Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Linc may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Tata Consultancy Services

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tata Consultancy Services are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Tata Consultancy is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Linc and Tata Consultancy

The main advantage of trading using opposite Linc and Tata Consultancy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Linc 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 Linc 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.