Correlation Between Royal Orchid and Tata Communications

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

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

Diversification Opportunities for Royal Orchid and Tata Communications

0.4

Correlation Coefficient

Royal Orchid  Tata Communications

Very weak diversification

The 3 months correlation between Royal and Tata is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Royal Orchid Hotels and Tata Communications Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tata Communications and Royal Orchid 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 Royal Orchid Hotels 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 Royal Orchid i.e., Royal Orchid and Tata Communications go up and down completely randomly.

Pair Corralation between Royal Orchid and Tata Communications

Assuming the 90 days trading horizon Royal Orchid Hotels is expected to generate 1.25 times more return on investment than Tata Communications. However, Royal Orchid is 1.25 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 -0.02 per unit of risk. If you would invest  36,024  in Royal Orchid Hotels on October 8, 2024 and sell it today you would earn a total of  2,156  from holding Royal Orchid Hotels or generate 5.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.19%
Values	Daily Returns

Royal Orchid Hotels  vs.  Tata Communications Limited

Royal Orchid Hotels

Risk-Adjusted Performance

5 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Orchid Hotels are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Royal Orchid may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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 weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Royal Orchid and Tata Communications

The main advantage of trading using opposite Royal Orchid and Tata Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Royal Orchid 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 Royal Orchid Hotels 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.

Check out your portfolio center.

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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.