Correlation Between Tata Communications and Maithan Alloys

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

Diversification Opportunities for Tata Communications and Maithan Alloys

0.44

Correlation Coefficient

Tata Communications  Maithan Alloys

Very weak diversification

The 3 months correlation between Tata and Maithan is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Tata Communications Limited and Maithan Alloys Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Maithan Alloys 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 Maithan Alloys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Maithan Alloys has no effect on the direction of Tata Communications i.e., Tata Communications and Maithan Alloys go up and down completely randomly.

Pair Corralation between Tata Communications and Maithan Alloys

Assuming the 90 days trading horizon Tata Communications is expected to generate 12.74 times less return on investment than Maithan Alloys. But when comparing it to its historical volatility, Tata Communications Limited is 1.19 times less risky than Maithan Alloys. It trades about 0.0 of its potential returns per unit of risk. Maithan Alloys Limited is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  112,560  in Maithan Alloys Limited on September 21, 2024 and sell it today you would earn a total of  8,575  from holding Maithan Alloys Limited or generate 7.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.05%
Values	Daily Returns

Tata Communications Limited  vs.  Maithan Alloys 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 unfluctuating 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.

Maithan Alloys

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Maithan Alloys Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Maithan Alloys is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Tata Communications and Maithan Alloys

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

The idea behind Tata Communications Limited and Maithan Alloys 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.