Correlation Between Suzlon Energy and Tata Communications

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

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

Diversification Opportunities for Suzlon Energy and Tata Communications

0.84

Correlation Coefficient

Suzlon Energy  Tata Communications

Very poor diversification

The 3 months correlation between Suzlon and Tata is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Suzlon Energy 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 Suzlon Energy 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 Suzlon Energy 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 Suzlon Energy i.e., Suzlon Energy and Tata Communications go up and down completely randomly.

Pair Corralation between Suzlon Energy and Tata Communications

Assuming the 90 days trading horizon Suzlon Energy Limited is expected to under-perform the Tata Communications. In addition to that, Suzlon Energy is 1.64 times more volatile than Tata Communications Limited. It trades about -0.1 of its total potential returns per unit of risk. Tata Communications Limited is currently generating about -0.11 per unit of volatility. If you would invest  201,785  in Tata Communications Limited on September 12, 2024 and sell it today you would lose (24,275) from holding Tata Communications Limited or give up 12.03% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	96.83%
Values	Daily Returns

Suzlon Energy Limited  vs.  Tata Communications Limited

Suzlon Energy Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Suzlon Energy Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's essential indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company 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 uncertain 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 Suzlon Energy and Tata Communications

The main advantage of trading using opposite Suzlon Energy and Tata Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Suzlon Energy 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 Suzlon Energy 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.