Correlation Between Tata Investment and Oriental Carbon

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

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

Diversification Opportunities for Tata Investment and Oriental Carbon

0.45

Correlation Coefficient

Tata Investment  Oriental Carbon

Very weak diversification

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

Pair Corralation between Tata Investment and Oriental Carbon

Assuming the 90 days trading horizon Tata Investment is expected to generate 0.66 times more return on investment than Oriental Carbon. However, Tata Investment is 1.52 times less risky than Oriental Carbon. It trades about -0.09 of its potential returns per unit of risk. Oriental Carbon Chemicals is currently generating about -0.19 per unit of risk. If you would invest  689,390  in Tata Investment on October 10, 2024 and sell it today you would lose (20,955) from holding Tata Investment or give up 3.04% of portfolio value over 90 days.

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

Tata Investment  vs.  Oriental Carbon Chemicals

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 current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Oriental Carbon Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Oriental Carbon Chemicals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Tata Investment and Oriental Carbon

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

The idea behind Tata Investment and Oriental Carbon Chemicals 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.