Correlation Between Tata Consultancy and Chalet Hotels

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

Diversification Opportunities for Tata Consultancy and Chalet Hotels

0.6

Correlation Coefficient

Tata Consultancy  Chalet Hotels

Poor diversification

The 3 months correlation between Tata and Chalet is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Tata Consultancy Services and Chalet Hotels Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chalet Hotels Limited 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 Chalet Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chalet Hotels Limited has no effect on the direction of Tata Consultancy i.e., Tata Consultancy and Chalet Hotels go up and down completely randomly.

Pair Corralation between Tata Consultancy and Chalet Hotels

Assuming the 90 days trading horizon Tata Consultancy Services is expected to under-perform the Chalet Hotels. But the stock apears to be less risky and, when comparing its historical volatility, Tata Consultancy Services is 1.85 times less risky than Chalet Hotels. The stock trades about -0.55 of its potential returns per unit of risk. The Chalet Hotels Limited is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest  79,970  in Chalet Hotels Limited on December 5, 2024 and sell it today you would lose (5,245) from holding Chalet Hotels Limited or give up 6.56% of portfolio value over 90 days.

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

Tata Consultancy Services  vs.  Chalet Hotels Limited

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 unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Chalet Hotels Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days Chalet Hotels Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's essential indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Tata Consultancy and Chalet Hotels

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

The idea behind Tata Consultancy Services and Chalet Hotels 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.