Correlation Between Tata Chemicals and SIL Investments

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

Diversification Opportunities for Tata Chemicals and SIL Investments

0.95

Correlation Coefficient

Tata Chemicals  SIL Investments

Almost no diversification

The 3 months correlation between Tata and SIL is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Tata Chemicals Limited and SIL Investments Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SIL Investments 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 SIL Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SIL Investments has no effect on the direction of Tata Chemicals i.e., Tata Chemicals and SIL Investments go up and down completely randomly.

Pair Corralation between Tata Chemicals and SIL Investments

Assuming the 90 days trading horizon Tata Chemicals Limited is expected to generate 0.67 times more return on investment than SIL Investments. However, Tata Chemicals Limited is 1.5 times less risky than SIL Investments. It trades about -0.28 of its potential returns per unit of risk. SIL Investments Limited is currently generating about -0.22 per unit of risk. If you would invest  111,175  in Tata Chemicals Limited on November 29, 2024 and sell it today you would lose (28,405) from holding Tata Chemicals Limited or give up 25.55% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Tata Chemicals Limited  vs.  SIL Investments Limited

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 weak performance in the last few months, the Stock's technical indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

SIL Investments

Risk-Adjusted Performance

Very Weak

Over the last 90 days SIL Investments Limited 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 forward indicators remain somewhat strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Tata Chemicals and SIL Investments

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

The idea behind Tata Chemicals Limited and SIL Investments 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.