Correlation Between Southern Petrochemicals and Tata Consultancy

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

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

Diversification Opportunities for Southern Petrochemicals and Tata Consultancy

0.15

Correlation Coefficient

Southern Petrochemicals  Tata Consultancy

Average diversification

The 3 months correlation between Southern and Tata is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Southern Petrochemicals Indust 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 Southern Petrochemicals 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 Southern Petrochemicals Industries 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 Southern Petrochemicals i.e., Southern Petrochemicals and Tata Consultancy go up and down completely randomly.

Pair Corralation between Southern Petrochemicals and Tata Consultancy

Assuming the 90 days trading horizon Southern Petrochemicals is expected to generate 15.68 times less return on investment than Tata Consultancy. In addition to that, Southern Petrochemicals is 2.07 times more volatile than Tata Consultancy Services. It trades about 0.0 of its total potential returns per unit of risk. Tata Consultancy Services is currently generating about 0.06 per unit of volatility. If you would invest  309,715  in Tata Consultancy Services on September 21, 2024 and sell it today you would earn a total of  117,475  from holding Tata Consultancy Services or generate 37.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.79%
Values	Daily Returns

Southern Petrochemicals Indust  vs.  Tata Consultancy Services

Southern Petrochemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Southern Petrochemicals Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak 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

0 of 100

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 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 Southern Petrochemicals and Tata Consultancy

The main advantage of trading using opposite Southern Petrochemicals and Tata Consultancy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southern Petrochemicals 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 Southern Petrochemicals Industries 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.