Correlation Between MphasiS and Tata Communications

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

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

Diversification Opportunities for MphasiS and Tata Communications

0.46

Correlation Coefficient

MphasiS  Tata Communications

Very weak diversification

The 3 months correlation between MphasiS and Tata is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding MphasiS Limited and Tata Communications Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tata Communications and MphasiS 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 MphasiS Limited 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 MphasiS i.e., MphasiS and Tata Communications go up and down completely randomly.

Pair Corralation between MphasiS and Tata Communications

Assuming the 90 days trading horizon MphasiS Limited is expected to generate 1.07 times more return on investment than Tata Communications. However, MphasiS is 1.07 times more volatile than Tata Communications Limited. It trades about -0.03 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  312,535  in MphasiS Limited on September 3, 2024 and sell it today you would lose (15,080) from holding MphasiS Limited or give up 4.83% of portfolio value over 90 days.

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

MphasiS Limited  vs.  Tata Communications Limited

MphasiS Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MphasiS Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, MphasiS is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

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 unsteady 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 MphasiS and Tata Communications

The main advantage of trading using opposite MphasiS and Tata Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MphasiS 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 MphasiS Limited 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.