Correlation Between Tata Communications and India Glycols

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

Diversification Opportunities for Tata Communications and India Glycols

0.78

Correlation Coefficient

Tata Communications  India Glycols

Poor diversification

The 3 months correlation between Tata and India is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Tata Communications Limited and India Glycols Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on India Glycols 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 India Glycols. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of India Glycols Limited has no effect on the direction of Tata Communications i.e., Tata Communications and India Glycols go up and down completely randomly.

Pair Corralation between Tata Communications and India Glycols

Assuming the 90 days trading horizon Tata Communications Limited is expected to generate 0.7 times more return on investment than India Glycols. However, Tata Communications Limited is 1.43 times less risky than India Glycols. It trades about -0.05 of its potential returns per unit of risk. India Glycols Limited is currently generating about -0.07 per unit of risk. If you would invest  172,875  in Tata Communications Limited on December 25, 2024 and sell it today you would lose (15,050) from holding Tata Communications Limited or give up 8.71% of portfolio value over 90 days.

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

Tata Communications Limited  vs.  India Glycols Limited

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 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.

India Glycols Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days India Glycols Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Tata Communications and India Glycols

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

The idea behind Tata Communications Limited and India Glycols 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.