Correlation Between Tata Communications and HMT

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

Diversification Opportunities for Tata Communications and HMT

0.76

Correlation Coefficient

Tata Communications  HMT

Poor diversification

The 3 months correlation between Tata and HMT is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Tata Communications Limited and HMT Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HMT 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 HMT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HMT Limited has no effect on the direction of Tata Communications i.e., Tata Communications and HMT go up and down completely randomly.

Pair Corralation between Tata Communications and HMT

Assuming the 90 days trading horizon Tata Communications Limited is expected to under-perform the HMT. But the stock apears to be less risky and, when comparing its historical volatility, Tata Communications Limited is 2.45 times less risky than HMT. The stock trades about -0.27 of its potential returns per unit of risk. The HMT Limited is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  6,762  in HMT Limited on October 14, 2024 and sell it today you would earn a total of  494.00  from holding HMT Limited or generate 7.31% return on investment over 90 days.

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

Tata Communications Limited  vs.  HMT 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 latest conflicting performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

HMT Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HMT Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Tata Communications and HMT

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

The idea behind Tata Communications Limited and HMT 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.