Correlation Between Tata Consultancy and Home First

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

Diversification Opportunities for Tata Consultancy and Home First

0.28

Correlation Coefficient

Tata Consultancy  Home First

Modest diversification

The 3 months correlation between Tata and Home is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Tata Consultancy Services and Home First Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home First Finance 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 Home First. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home First Finance has no effect on the direction of Tata Consultancy i.e., Tata Consultancy and Home First go up and down completely randomly.

Pair Corralation between Tata Consultancy and Home First

Assuming the 90 days trading horizon Tata Consultancy Services is expected to under-perform the Home First. But the stock apears to be less risky and, when comparing its historical volatility, Tata Consultancy Services is 1.81 times less risky than Home First. The stock trades about -0.14 of its potential returns per unit of risk. The Home First Finance is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  100,025  in Home First Finance on December 23, 2024 and sell it today you would earn a total of  10,290  from holding Home First Finance or generate 10.29% return on investment over 90 days.

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

Tata Consultancy Services  vs.  Home First Finance

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 conflicting 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.

Home First Finance

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Home First Finance are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Home First may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Tata Consultancy and Home First

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

The idea behind Tata Consultancy Services and Home First Finance 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.