Correlation Between Tata Consultancy and Lotus Eye

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

Diversification Opportunities for Tata Consultancy and Lotus Eye

0.82

Correlation Coefficient

Tata Consultancy  Lotus Eye

Very poor diversification

The 3 months correlation between Tata and Lotus is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Tata Consultancy Services and Lotus Eye Hospital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lotus Eye Hospital 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 Lotus Eye. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lotus Eye Hospital has no effect on the direction of Tata Consultancy i.e., Tata Consultancy and Lotus Eye go up and down completely randomly.

Pair Corralation between Tata Consultancy and Lotus Eye

Assuming the 90 days trading horizon Tata Consultancy Services is expected to generate 0.65 times more return on investment than Lotus Eye. However, Tata Consultancy Services is 1.53 times less risky than Lotus Eye. It trades about -0.24 of its potential returns per unit of risk. Lotus Eye Hospital is currently generating about -0.17 per unit of risk. If you would invest  410,030  in Tata Consultancy Services on December 2, 2024 and sell it today you would lose (61,705) from holding Tata Consultancy Services or give up 15.05% of portfolio value over 90 days.

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

Tata Consultancy Services  vs.  Lotus Eye Hospital

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 unfluctuating 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.

Lotus Eye Hospital

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lotus Eye Hospital 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 fairly 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 Lotus Eye

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

The idea behind Tata Consultancy Services and Lotus Eye Hospital 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.