Correlation Between Tata Investment and Touchwood Entertainment

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

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

Diversification Opportunities for Tata Investment and Touchwood Entertainment

0.82

Correlation Coefficient

Tata Investment  Touchwood Entertainment

Very poor diversification

The 3 months correlation between Tata and Touchwood is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Tata Investment and Touchwood Entertainment Limite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Touchwood Entertainment 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 Touchwood Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Touchwood Entertainment has no effect on the direction of Tata Investment i.e., Tata Investment and Touchwood Entertainment go up and down completely randomly.

Pair Corralation between Tata Investment and Touchwood Entertainment

Assuming the 90 days trading horizon Tata Investment is expected to generate 0.57 times more return on investment than Touchwood Entertainment. However, Tata Investment is 1.77 times less risky than Touchwood Entertainment. It trades about -0.07 of its potential returns per unit of risk. Touchwood Entertainment Limited is currently generating about -0.13 per unit of risk. If you would invest  684,280  in Tata Investment on December 3, 2024 and sell it today you would lose (91,000) from holding Tata Investment or give up 13.3% of portfolio value over 90 days.

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

Tata Investment  vs.  Touchwood Entertainment Limite

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 latest unsteady 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.

Touchwood Entertainment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Touchwood Entertainment Limited 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 very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Tata Investment and Touchwood Entertainment

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

The idea behind Tata Investment and Touchwood Entertainment 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.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.