Correlation Between Tata Consultancy and India Glycols

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

Diversification Opportunities for Tata Consultancy and India Glycols

0.14

Correlation Coefficient

Tata Consultancy  India Glycols

Average diversification

The 3 months correlation between Tata and India is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Tata Consultancy Services and India Glycols Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on India Glycols 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 India Glycols. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of India Glycols Limited has no effect on the direction of Tata Consultancy i.e., Tata Consultancy and India Glycols go up and down completely randomly.

Pair Corralation between Tata Consultancy and India Glycols

Assuming the 90 days trading horizon Tata Consultancy Services is expected to under-perform the India Glycols. But the stock apears to be less risky and, when comparing its historical volatility, Tata Consultancy Services is 2.85 times less risky than India Glycols. The stock trades about -0.05 of its potential returns per unit of risk. The India Glycols Limited is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  133,180  in India Glycols Limited on September 4, 2024 and sell it today you would earn a total of  2,710  from holding India Glycols Limited or generate 2.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Tata Consultancy Services  vs.  India Glycols 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 newest stock price tumult, may contribute to shorter-term losses for the shareholders.

India Glycols Limited

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in India Glycols Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, India Glycols is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Tata Consultancy and India Glycols

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

The idea behind Tata Consultancy Services and India Glycols 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..