Correlation Between Tata Communications and Apollo Hospitals

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

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

Diversification Opportunities for Tata Communications and Apollo Hospitals

0.88

Correlation Coefficient

Tata Communications  Apollo Hospitals

Very poor diversification

The 3 months correlation between Tata and Apollo is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Tata Communications Limited and Apollo Hospitals Enterprise in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Apollo Hospitals Ent and Tata Communications 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 Communications Limited are associated (or correlated) with Apollo Hospitals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Apollo Hospitals Ent has no effect on the direction of Tata Communications i.e., Tata Communications and Apollo Hospitals go up and down completely randomly.

Pair Corralation between Tata Communications and Apollo Hospitals

Assuming the 90 days trading horizon Tata Communications Limited is expected to generate 1.49 times more return on investment than Apollo Hospitals. However, Tata Communications is 1.49 times more volatile than Apollo Hospitals Enterprise. It trades about -0.03 of its potential returns per unit of risk. Apollo Hospitals Enterprise is currently generating about -0.1 per unit of risk. If you would invest  171,015  in Tata Communications Limited on December 27, 2024 and sell it today you would lose (10,520) from holding Tata Communications Limited or give up 6.15% of portfolio value over 90 days.

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

Tata Communications Limited  vs.  Apollo Hospitals Enterprise

Tata Communications

Risk-Adjusted Performance

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 very healthy basic indicators, Tata Communications is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Apollo Hospitals Ent

Risk-Adjusted Performance

Very Weak

Over the last 90 days Apollo Hospitals Enterprise has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Tata Communications and Apollo Hospitals

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

The idea behind Tata Communications Limited and Apollo Hospitals Enterprise 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.