Correlation Between Tata Consultancy and Computer Age

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

Diversification Opportunities for Tata Consultancy and Computer Age

0.61

Correlation Coefficient

Tata Consultancy  Computer Age

Poor diversification

The 3 months correlation between Tata and Computer is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Tata Consultancy Services and Computer Age Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Computer Age Management 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 Computer Age. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Computer Age Management has no effect on the direction of Tata Consultancy i.e., Tata Consultancy and Computer Age go up and down completely randomly.

Pair Corralation between Tata Consultancy and Computer Age

Assuming the 90 days trading horizon Tata Consultancy is expected to generate 9.13 times less return on investment than Computer Age. But when comparing it to its historical volatility, Tata Consultancy Services is 1.94 times less risky than Computer Age. It trades about 0.02 of its potential returns per unit of risk. Computer Age Management is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  280,999  in Computer Age Management on October 9, 2024 and sell it today you would earn a total of  206,881  from holding Computer Age Management or generate 73.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.59%
Values	Daily Returns

Tata Consultancy Services  vs.  Computer Age Management

Tata Consultancy Services

Risk-Adjusted Performance

0 of 100

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 rather sound technical and fundamental indicators, Tata Consultancy is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Computer Age Management

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Computer Age Management are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Computer Age may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Tata Consultancy and Computer Age

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

The idea behind Tata Consultancy Services and Computer Age Management 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.