Correlation Between Tata Motors and Rail Vikas

Can any of the company-specific risk be diversified away by investing in both Tata Motors and Rail Vikas 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 Rail Vikas 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 Rail Vikas Nigam, you can compare the effects of market volatilities on Tata Motors and Rail Vikas 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 Rail Vikas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tata Motors and Rail Vikas.

Diversification Opportunities for Tata Motors and Rail Vikas

0.75

Correlation Coefficient

Tata Motors  Rail Vikas

Poor diversification

The 3 months correlation between Tata and Rail is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Tata Motors Limited and Rail Vikas Nigam in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rail Vikas Nigam 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 Rail Vikas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rail Vikas Nigam has no effect on the direction of Tata Motors i.e., Tata Motors and Rail Vikas go up and down completely randomly.

Pair Corralation between Tata Motors and Rail Vikas

Assuming the 90 days trading horizon Tata Motors Limited is expected to under-perform the Rail Vikas. But the stock apears to be less risky and, when comparing its historical volatility, Tata Motors Limited is 1.77 times less risky than Rail Vikas. The stock trades about -0.2 of its potential returns per unit of risk. The Rail Vikas Nigam is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  45,170  in Rail Vikas Nigam on October 5, 2024 and sell it today you would lose (2,215) from holding Rail Vikas Nigam or give up 4.9% of portfolio value over 90 days.

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

Tata Motors Limited  vs.  Rail Vikas Nigam

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 conflicting 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.

Rail Vikas Nigam

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rail Vikas Nigam has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Rail Vikas is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Tata Motors and Rail Vikas

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

The idea behind Tata Motors Limited and Rail Vikas Nigam 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.