Correlation Between NRB Industrial and Tata Consultancy

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

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

Diversification Opportunities for NRB Industrial and Tata Consultancy

0.16

Correlation Coefficient

NRB Industrial  Tata Consultancy

Average diversification

The 3 months correlation between NRB and Tata is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding NRB Industrial Bearings 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 NRB Industrial 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 NRB Industrial Bearings 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 NRB Industrial i.e., NRB Industrial and Tata Consultancy go up and down completely randomly.

Pair Corralation between NRB Industrial and Tata Consultancy

Assuming the 90 days trading horizon NRB Industrial Bearings is expected to generate 2.14 times more return on investment than Tata Consultancy. However, NRB Industrial is 2.14 times more volatile than Tata Consultancy Services. It trades about -0.06 of its potential returns per unit of risk. Tata Consultancy Services is currently generating about -0.13 per unit of risk. If you would invest  2,379  in NRB Industrial Bearings on December 29, 2024 and sell it today you would lose (310.00) from holding NRB Industrial Bearings or give up 13.03% of portfolio value over 90 days.

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

NRB Industrial Bearings  vs.  Tata Consultancy Services

NRB Industrial Bearings

Risk-Adjusted Performance

Very Weak

Over the last 90 days NRB Industrial Bearings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Tata Consultancy Services

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tata Consultancy Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with NRB Industrial and Tata Consultancy

The main advantage of trading using opposite NRB Industrial and Tata Consultancy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NRB Industrial 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 NRB Industrial Bearings 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.