Correlation Between Tata Consultancy and GM Breweries

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

Diversification Opportunities for Tata Consultancy and GM Breweries

0.41

Correlation Coefficient

Tata Consultancy  GM Breweries

Very weak diversification

The 3 months correlation between Tata and GMBREW is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Tata Consultancy Services and GM Breweries Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GM Breweries 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 GM Breweries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GM Breweries Limited has no effect on the direction of Tata Consultancy i.e., Tata Consultancy and GM Breweries go up and down completely randomly.

Pair Corralation between Tata Consultancy and GM Breweries

Assuming the 90 days trading horizon Tata Consultancy is expected to generate 7.93 times less return on investment than GM Breweries. But when comparing it to its historical volatility, Tata Consultancy Services is 2.75 times less risky than GM Breweries. It trades about 0.02 of its potential returns per unit of risk. GM Breweries Limited is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  53,028  in GM Breweries Limited on October 9, 2024 and sell it today you would earn a total of  25,567  from holding GM Breweries Limited or generate 48.21% return on investment over 90 days.

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

Tata Consultancy Services  vs.  GM Breweries Limited

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.

GM Breweries Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GM Breweries Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Tata Consultancy and GM Breweries

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

The idea behind Tata Consultancy Services and GM Breweries 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.