Correlation Between Tata Investment and Indian Energy

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

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

Diversification Opportunities for Tata Investment and Indian Energy

0.46

Correlation Coefficient

Tata Investment  Indian Energy

Very weak diversification

The 3 months correlation between Tata and Indian is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Tata Investment and Indian Energy Exchange in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indian Energy Exchange 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 Indian Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indian Energy Exchange has no effect on the direction of Tata Investment i.e., Tata Investment and Indian Energy go up and down completely randomly.

Pair Corralation between Tata Investment and Indian Energy

Assuming the 90 days trading horizon Tata Investment is expected to generate 0.73 times more return on investment than Indian Energy. However, Tata Investment is 1.36 times less risky than Indian Energy. It trades about -0.07 of its potential returns per unit of risk. Indian Energy Exchange is currently generating about -0.08 per unit of risk. If you would invest  721,380  in Tata Investment on September 2, 2024 and sell it today you would lose (57,080) from holding Tata Investment or give up 7.91% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Tata Investment  vs.  Indian Energy Exchange

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 latest uncertain performance, the Stock's technical and fundamental indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Indian Energy Exchange

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Indian Energy Exchange has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Tata Investment and Indian Energy

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

The idea behind Tata Investment and Indian Energy Exchange 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.

Check out your portfolio center.

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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.