Correlation Between Tata Consultancy and Mangalam Organics

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

Diversification Opportunities for Tata Consultancy and Mangalam Organics

-0.55

Correlation Coefficient

Tata Consultancy  Mangalam Organics

Excellent diversification

The 3 months correlation between Tata and Mangalam is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Tata Consultancy Services and Mangalam Organics Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mangalam Organics 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 Mangalam Organics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mangalam Organics has no effect on the direction of Tata Consultancy i.e., Tata Consultancy and Mangalam Organics go up and down completely randomly.

Pair Corralation between Tata Consultancy and Mangalam Organics

Assuming the 90 days trading horizon Tata Consultancy Services is expected to under-perform the Mangalam Organics. But the stock apears to be less risky and, when comparing its historical volatility, Tata Consultancy Services is 2.09 times less risky than Mangalam Organics. The stock trades about -0.44 of its potential returns per unit of risk. The Mangalam Organics Limited is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  43,115  in Mangalam Organics Limited on October 10, 2024 and sell it today you would lose (1,020) from holding Mangalam Organics Limited or give up 2.37% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Tata Consultancy Services  vs.  Mangalam Organics 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.

Mangalam Organics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mangalam Organics Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Tata Consultancy and Mangalam Organics

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

The idea behind Tata Consultancy Services and Mangalam Organics 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.