Correlation Between Tata Investment and Bodal Chemicals

Can any of the company-specific risk be diversified away by investing in both Tata Investment and Bodal Chemicals 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 Investment and Bodal Chemicals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Tata Investment and Bodal Chemicals Limited, you can compare the effects of market volatilities on Tata Investment and Bodal Chemicals 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 Investment with a short position of Bodal Chemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tata Investment and Bodal Chemicals.

Diversification Opportunities for Tata Investment and Bodal Chemicals

0.43

Correlation Coefficient

Tata Investment  Bodal Chemicals

Very weak diversification

The 3 months correlation between Tata and Bodal is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Tata Investment and Bodal Chemicals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bodal Chemicals and Tata Investment 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 Investment are associated (or correlated) with Bodal Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bodal Chemicals has no effect on the direction of Tata Investment i.e., Tata Investment and Bodal Chemicals go up and down completely randomly.

Pair Corralation between Tata Investment and Bodal Chemicals

Assuming the 90 days trading horizon Tata Investment is expected to generate 1.07 times more return on investment than Bodal Chemicals. However, Tata Investment is 1.07 times more volatile than Bodal Chemicals Limited. It trades about 0.14 of its potential returns per unit of risk. Bodal Chemicals Limited is currently generating about -0.27 per unit of risk. If you would invest  668,435  in Tata Investment on September 28, 2024 and sell it today you would earn a total of  24,685  from holding Tata Investment or generate 3.69% return on investment over 90 days.

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

Tata Investment  vs.  Bodal Chemicals Limited

Tata Investment

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tata Investment are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable technical and fundamental indicators, Tata Investment is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Bodal Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bodal Chemicals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Tata Investment and Bodal Chemicals

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

The idea behind Tata Investment and Bodal Chemicals 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.