Correlation Between Tata Investment and HEG

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

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

Diversification Opportunities for Tata Investment and HEG

0.45

Correlation Coefficient

Tata Investment  HEG

Very weak diversification

The 3 months correlation between Tata and HEG is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Tata Investment and HEG Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HEG Limited 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 HEG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HEG Limited has no effect on the direction of Tata Investment i.e., Tata Investment and HEG go up and down completely randomly.

Pair Corralation between Tata Investment and HEG

Assuming the 90 days trading horizon Tata Investment is expected to generate 1303.05 times less return on investment than HEG. But when comparing it to its historical volatility, Tata Investment is 38.58 times less risky than HEG. It trades about 0.0 of its potential returns per unit of risk. HEG Limited is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  42,760  in HEG Limited on September 21, 2024 and sell it today you would earn a total of  14,025  from holding HEG Limited or generate 32.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.21%
Values	Daily Returns

Tata Investment  vs.  HEG Limited

Tata Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tata Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable technical and fundamental indicators, Tata Investment is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

HEG Limited

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HEG Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal technical and fundamental indicators, HEG exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tata Investment and HEG

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

The idea behind Tata Investment and HEG 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.