Correlation Between Tata Chemicals and Elgi Rubber

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

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

Diversification Opportunities for Tata Chemicals and Elgi Rubber

0.78

Correlation Coefficient

Tata Chemicals  Elgi Rubber

Poor diversification

The 3 months correlation between Tata and Elgi is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Tata Chemicals Limited and Elgi Rubber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elgi Rubber and Tata Chemicals 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 Tata Chemicals Limited are associated (or correlated) with Elgi Rubber. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elgi Rubber has no effect on the direction of Tata Chemicals i.e., Tata Chemicals and Elgi Rubber go up and down completely randomly.

Pair Corralation between Tata Chemicals and Elgi Rubber

Assuming the 90 days trading horizon Tata Chemicals Limited is expected to generate 0.38 times more return on investment than Elgi Rubber. However, Tata Chemicals Limited is 2.62 times less risky than Elgi Rubber. It trades about -0.35 of its potential returns per unit of risk. Elgi Rubber is currently generating about -0.19 per unit of risk. If you would invest  112,980  in Tata Chemicals Limited on December 1, 2024 and sell it today you would lose (35,245) from holding Tata Chemicals Limited or give up 31.2% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Tata Chemicals Limited  vs.  Elgi Rubber

Tata Chemicals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tata Chemicals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Elgi Rubber

Risk-Adjusted Performance

Very Weak

Over the last 90 days Elgi Rubber has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental drivers remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Tata Chemicals and Elgi Rubber

The main advantage of trading using opposite Tata Chemicals and Elgi Rubber positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tata Chemicals position performs unexpectedly, Elgi Rubber 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 Elgi Rubber will offset losses from the drop in Elgi Rubber's long position.

The idea behind Tata Chemicals Limited and Elgi Rubber 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.