Correlation Between Tata Motors and Hi Tech

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

By analyzing existing cross correlation between Tata Motors Limited and The Hi Tech Gears, you can compare the effects of market volatilities on Tata Motors and Hi Tech 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 Motors with a short position of Hi Tech. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tata Motors and Hi Tech.

Diversification Opportunities for Tata Motors and Hi Tech

-0.17

Correlation Coefficient

Tata Motors  Hi Tech

Good diversification

The 3 months correlation between Tata and HITECHGEAR is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Tata Motors Limited and The Hi Tech Gears in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hi Tech and Tata Motors 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 Motors Limited are associated (or correlated) with Hi Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hi Tech has no effect on the direction of Tata Motors i.e., Tata Motors and Hi Tech go up and down completely randomly.

Pair Corralation between Tata Motors and Hi Tech

Assuming the 90 days trading horizon Tata Motors Limited is expected to under-perform the Hi Tech. But the stock apears to be less risky and, when comparing its historical volatility, Tata Motors Limited is 1.45 times less risky than Hi Tech. The stock trades about -0.11 of its potential returns per unit of risk. The The Hi Tech Gears is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  77,905  in The Hi Tech Gears on October 23, 2024 and sell it today you would earn a total of  1,230  from holding The Hi Tech Gears or generate 1.58% return on investment over 90 days.

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

Tata Motors Limited  vs.  The Hi Tech Gears

Tata Motors Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tata Motors Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Hi Tech

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Hi Tech Gears are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Hi Tech is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Tata Motors and Hi Tech

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

The idea behind Tata Motors Limited and The Hi Tech Gears 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.