Correlation Between Tata Consultancy and IOL Chemicals

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

Diversification Opportunities for Tata Consultancy and IOL Chemicals

0.14

Correlation Coefficient

Tata Consultancy  IOL Chemicals

Average diversification

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

Pair Corralation between Tata Consultancy and IOL Chemicals

Assuming the 90 days trading horizon Tata Consultancy is expected to generate 1.19 times less return on investment than IOL Chemicals. But when comparing it to its historical volatility, Tata Consultancy Services is 2.11 times less risky than IOL Chemicals. It trades about 0.05 of its potential returns per unit of risk. IOL Chemicals and is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  34,191  in IOL Chemicals and on October 4, 2024 and sell it today you would earn a total of  6,564  from holding IOL Chemicals and or generate 19.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.79%
Values	Daily Returns

Tata Consultancy Services  vs.  IOL Chemicals and

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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

IOL Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IOL Chemicals and has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's essential indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Tata Consultancy and IOL Chemicals

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

The idea behind Tata Consultancy Services and IOL Chemicals and 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.