Correlation Between Tata Consultancy and Bajaj Holdings

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

By analyzing existing cross correlation between Tata Consultancy Services and Bajaj Holdings Investment, you can compare the effects of market volatilities on Tata Consultancy and Bajaj Holdings 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 Consultancy with a short position of Bajaj Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tata Consultancy and Bajaj Holdings.

Diversification Opportunities for Tata Consultancy and Bajaj Holdings

-0.43

Correlation Coefficient

Tata Consultancy  Bajaj Holdings

Very good diversification

The 3 months correlation between Tata and Bajaj is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Tata Consultancy Services and Bajaj Holdings Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bajaj Holdings Investment and Tata Consultancy 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 Consultancy Services are associated (or correlated) with Bajaj Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bajaj Holdings Investment has no effect on the direction of Tata Consultancy i.e., Tata Consultancy and Bajaj Holdings go up and down completely randomly.

Pair Corralation between Tata Consultancy and Bajaj Holdings

Assuming the 90 days trading horizon Tata Consultancy Services is expected to under-perform the Bajaj Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Tata Consultancy Services is 2.26 times less risky than Bajaj Holdings. The stock trades about -0.13 of its potential returns per unit of risk. The Bajaj Holdings Investment is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,109,400  in Bajaj Holdings Investment on December 25, 2024 and sell it today you would earn a total of  134,150  from holding Bajaj Holdings Investment or generate 12.09% return on investment over 90 days.

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

Tata Consultancy Services  vs.  Bajaj Holdings Investment

Tata Consultancy Services

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tata Consultancy Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting 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.

Bajaj Holdings Investment

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bajaj Holdings Investment are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent fundamental indicators, Bajaj Holdings disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tata Consultancy and Bajaj Holdings

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

The idea behind Tata Consultancy Services and Bajaj Holdings Investment 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.