Correlation Between Tata Investment and Tamilnad Mercantile

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

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

Diversification Opportunities for Tata Investment and Tamilnad Mercantile

0.64

Correlation Coefficient

Tata Investment  Tamilnad Mercantile

Poor diversification

The 3 months correlation between Tata and Tamilnad is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Tata Investment and Tamilnad Mercantile Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tamilnad Mercantile Bank 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 Tamilnad Mercantile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tamilnad Mercantile Bank has no effect on the direction of Tata Investment i.e., Tata Investment and Tamilnad Mercantile go up and down completely randomly.

Pair Corralation between Tata Investment and Tamilnad Mercantile

Assuming the 90 days trading horizon Tata Investment is expected to generate 2.63 times more return on investment than Tamilnad Mercantile. However, Tata Investment is 2.63 times more volatile than Tamilnad Mercantile Bank. It trades about -0.03 of its potential returns per unit of risk. Tamilnad Mercantile Bank is currently generating about -0.11 per unit of risk. If you would invest  693,120  in Tata Investment on December 25, 2024 and sell it today you would lose (49,720) from holding Tata Investment or give up 7.17% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Tata Investment  vs.  Tamilnad Mercantile Bank

Tata Investment

Risk-Adjusted Performance

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

Tamilnad Mercantile Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tamilnad Mercantile Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady 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 Tamilnad Mercantile

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

The idea behind Tata Investment and Tamilnad Mercantile Bank 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..