Correlation Between RBL Bank and Tata Communications

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

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

Diversification Opportunities for RBL Bank and Tata Communications

0.07

Correlation Coefficient

RBL Bank  Tata Communications

Significant diversification

The 3 months correlation between RBL and Tata is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding RBL Bank 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 RBL Bank 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 RBL Bank 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 RBL Bank i.e., RBL Bank and Tata Communications go up and down completely randomly.

Pair Corralation between RBL Bank and Tata Communications

Assuming the 90 days trading horizon RBL Bank Limited is expected to generate 1.01 times more return on investment than Tata Communications. However, RBL Bank is 1.01 times more volatile than Tata Communications Limited. It trades about 0.06 of its potential returns per unit of risk. Tata Communications Limited is currently generating about -0.05 per unit of risk. If you would invest  16,331  in RBL Bank Limited on December 25, 2024 and sell it today you would earn a total of  1,188  from holding RBL Bank Limited or generate 7.27% return on investment over 90 days.

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

RBL Bank Limited  vs.  Tata Communications Limited

RBL Bank Limited

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in RBL Bank Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating basic indicators, RBL Bank may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Tata Communications

Risk-Adjusted Performance

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 conflicting 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 RBL Bank and Tata Communications

The main advantage of trading using opposite RBL Bank and Tata Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RBL Bank 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 RBL Bank 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..