Correlation Between Tata Investment and Southern Petrochemicals

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

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

Diversification Opportunities for Tata Investment and Southern Petrochemicals

0.59

Correlation Coefficient

Tata Investment  Southern Petrochemicals

Very weak diversification

The 3 months correlation between Tata and Southern is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Tata Investment and Southern Petrochemicals Indust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern Petrochemicals 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 Southern Petrochemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern Petrochemicals has no effect on the direction of Tata Investment i.e., Tata Investment and Southern Petrochemicals go up and down completely randomly.

Pair Corralation between Tata Investment and Southern Petrochemicals

Assuming the 90 days trading horizon Tata Investment is expected to generate 1.12 times more return on investment than Southern Petrochemicals. However, Tata Investment is 1.12 times more volatile than Southern Petrochemicals Industries. It trades about 0.09 of its potential returns per unit of risk. Southern Petrochemicals Industries is currently generating about 0.02 per unit of risk. If you would invest  213,201  in Tata Investment on October 24, 2024 and sell it today you would earn a total of  400,514  from holding Tata Investment or generate 187.86% return on investment over 90 days.

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

Tata Investment  vs.  Southern Petrochemicals Indust

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 unfluctuating 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.

Southern Petrochemicals

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Southern Petrochemicals Industries are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Southern Petrochemicals is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Tata Investment and Southern Petrochemicals

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

The idea behind Tata Investment and Southern Petrochemicals Industries 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.