Correlation Between Tata Communications and BF Utilities

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

Diversification Opportunities for Tata Communications and BF Utilities

0.13

Correlation Coefficient

Tata Communications  BF Utilities

Average diversification

The 3 months correlation between Tata and BFUTILITIE is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Tata Communications Limited and BF Utilities Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BF Utilities Limited 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 BF Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BF Utilities Limited has no effect on the direction of Tata Communications i.e., Tata Communications and BF Utilities go up and down completely randomly.

Pair Corralation between Tata Communications and BF Utilities

Assuming the 90 days trading horizon Tata Communications is expected to generate 21.35 times less return on investment than BF Utilities. But when comparing it to its historical volatility, Tata Communications Limited is 1.62 times less risky than BF Utilities. It trades about 0.01 of its potential returns per unit of risk. BF Utilities Limited is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  95,035  in BF Utilities Limited on September 22, 2024 and sell it today you would earn a total of  5,415  from holding BF Utilities Limited or generate 5.7% return on investment over 90 days.

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

Tata Communications Limited  vs.  BF Utilities Limited

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 conflicting performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

BF Utilities Limited

Risk-Adjusted Performance

5 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BF Utilities Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain basic indicators, BF Utilities demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tata Communications and BF Utilities

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

The idea behind Tata Communications Limited and BF Utilities 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 Stocks Directory module to find actively traded stocks across global markets.