Correlation Between Tata Motors and Ortel Communications

Can any of the company-specific risk be diversified away by investing in both Tata Motors 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 Motors 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 Motors Limited and Ortel Communications Limited, you can compare the effects of market volatilities on Tata Motors 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 Motors with a short position of Ortel Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tata Motors and Ortel Communications.

Diversification Opportunities for Tata Motors and Ortel Communications

-0.02

Correlation Coefficient

Tata Motors  Ortel Communications

Good diversification

The 3 months correlation between Tata and Ortel is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Tata Motors Limited 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 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 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 Motors i.e., Tata Motors and Ortel Communications go up and down completely randomly.

Pair Corralation between Tata Motors and Ortel Communications

Assuming the 90 days trading horizon Tata Motors Limited is expected to generate 0.97 times more return on investment than Ortel Communications. However, Tata Motors Limited is 1.03 times less risky than Ortel Communications. It trades about -0.05 of its potential returns per unit of risk. Ortel Communications Limited is currently generating about -0.38 per unit of risk. If you would invest  79,910  in Tata Motors Limited on October 12, 2024 and sell it today you would lose (1,900) from holding Tata Motors Limited or give up 2.38% of portfolio value over 90 days.

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

Tata Motors Limited  vs.  Ortel Communications Limited

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 weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Ortel Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ortel Communications 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 healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Tata Motors and Ortel Communications

The main advantage of trading using opposite Tata Motors and Ortel Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tata Motors 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 Motors Limited 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.