Correlation Between Tata Investment and Ortel Communications

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

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

Diversification Opportunities for Tata Investment and Ortel Communications

0.25

Correlation Coefficient

Tata Investment  Ortel Communications

Modest diversification

The 3 months correlation between Tata and Ortel is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Tata Investment and Ortel Communications Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ortel Communications 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 Ortel Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ortel Communications has no effect on the direction of Tata Investment i.e., Tata Investment and Ortel Communications go up and down completely randomly.

Pair Corralation between Tata Investment and Ortel Communications

Assuming the 90 days trading horizon Tata Investment is expected to generate 0.93 times more return on investment than Ortel Communications. However, Tata Investment is 1.08 times less risky than Ortel Communications. It trades about 0.1 of its potential returns per unit of risk. Ortel Communications Limited is currently generating about 0.07 per unit of risk. If you would invest  206,558  in Tata Investment on September 21, 2024 and sell it today you would earn a total of  457,397  from holding Tata Investment or generate 221.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.79%
Values	Daily Returns

Tata Investment  vs.  Ortel Communications 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.

Ortel Communications

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ortel Communications Limited are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Ortel Communications displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tata Investment and Ortel Communications

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

The idea behind Tata Investment and Ortel Communications 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.