Correlation Between Tata Communications and Kotak Mahindra

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

Diversification Opportunities for Tata Communications and Kotak Mahindra

-0.57

Correlation Coefficient

Tata Communications  Kotak Mahindra

Excellent diversification

The 3 months correlation between Tata and Kotak is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Tata Communications Limited and Kotak Mahindra Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kotak Mahindra Bank 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 Kotak Mahindra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kotak Mahindra Bank has no effect on the direction of Tata Communications i.e., Tata Communications and Kotak Mahindra go up and down completely randomly.

Pair Corralation between Tata Communications and Kotak Mahindra

Assuming the 90 days trading horizon Tata Communications Limited is expected to under-perform the Kotak Mahindra. In addition to that, Tata Communications is 1.25 times more volatile than Kotak Mahindra Bank. It trades about -0.05 of its total potential returns per unit of risk. Kotak Mahindra Bank is currently generating about 0.2 per unit of volatility. If you would invest  175,915  in Kotak Mahindra Bank on December 26, 2024 and sell it today you would earn a total of  41,085  from holding Kotak Mahindra Bank or generate 23.36% return on investment over 90 days.

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

Tata Communications Limited  vs.  Kotak Mahindra Bank

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 abnormal 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.

Kotak Mahindra Bank

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kotak Mahindra Bank are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Kotak Mahindra sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tata Communications and Kotak Mahindra

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

The idea behind Tata Communications Limited and Kotak Mahindra Bank 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.