Correlation Between Tata Communications and LT Foods

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

Diversification Opportunities for Tata Communications and LT Foods

0.13

Correlation Coefficient

Tata Communications  LT Foods

Average diversification

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

Pair Corralation between Tata Communications and LT Foods

Assuming the 90 days trading horizon Tata Communications Limited is expected to generate 0.66 times more return on investment than LT Foods. However, Tata Communications Limited is 1.51 times less risky than LT Foods. It trades about -0.18 of its potential returns per unit of risk. LT Foods Limited is currently generating about -0.17 per unit of risk. If you would invest  179,030  in Tata Communications Limited on October 8, 2024 and sell it today you would lose (9,910) from holding Tata Communications Limited or give up 5.54% of portfolio value over 90 days.

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

Tata Communications Limited  vs.  LT Foods 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 unsteady performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

LT Foods Limited

Risk-Adjusted Performance

2 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in LT Foods Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, LT Foods is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Tata Communications and LT Foods

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

The idea behind Tata Communications Limited and LT Foods 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.