Correlation Between Tata Chemicals and Newgen Software

Can any of the company-specific risk be diversified away by investing in both Tata Chemicals and Newgen Software 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 Newgen Software 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 Newgen Software Technologies, you can compare the effects of market volatilities on Tata Chemicals and Newgen Software 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 Newgen Software. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tata Chemicals and Newgen Software.

Diversification Opportunities for Tata Chemicals and Newgen Software

-0.11

Correlation Coefficient

Tata Chemicals  Newgen Software

Good diversification

The 3 months correlation between Tata and Newgen is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Tata Chemicals Limited and Newgen Software Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Newgen Software Tech 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 Newgen Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Newgen Software Tech has no effect on the direction of Tata Chemicals i.e., Tata Chemicals and Newgen Software go up and down completely randomly.

Pair Corralation between Tata Chemicals and Newgen Software

Assuming the 90 days trading horizon Tata Chemicals Limited is expected to under-perform the Newgen Software. But the stock apears to be less risky and, when comparing its historical volatility, Tata Chemicals Limited is 1.92 times less risky than Newgen Software. The stock trades about -0.16 of its potential returns per unit of risk. The Newgen Software Technologies is currently generating about 0.69 of returns per unit of risk over similar time horizon. If you would invest  111,980  in Newgen Software Technologies on September 25, 2024 and sell it today you would earn a total of  48,285  from holding Newgen Software Technologies or generate 43.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Tata Chemicals Limited  vs.  Newgen Software Technologies

Tata Chemicals

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tata Chemicals Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical indicators, Tata Chemicals is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Newgen Software Tech

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Newgen Software Technologies are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady technical and fundamental indicators, Newgen Software sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tata Chemicals and Newgen Software

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

The idea behind Tata Chemicals Limited and Newgen Software Technologies 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.