Correlation Between Tata Consultancy and Nazara Technologies

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

Diversification Opportunities for Tata Consultancy and Nazara Technologies

0.76

Correlation Coefficient

Tata Consultancy  Nazara Technologies

Poor diversification

The 3 months correlation between Tata and Nazara is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Tata Consultancy Services and Nazara Technologies Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nazara Technologies 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 Nazara Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nazara Technologies has no effect on the direction of Tata Consultancy i.e., Tata Consultancy and Nazara Technologies go up and down completely randomly.

Pair Corralation between Tata Consultancy and Nazara Technologies

Assuming the 90 days trading horizon Tata Consultancy Services is expected to generate 0.56 times more return on investment than Nazara Technologies. However, Tata Consultancy Services is 1.79 times less risky than Nazara Technologies. It trades about -0.02 of its potential returns per unit of risk. Nazara Technologies Limited is currently generating about -0.02 per unit of risk. If you would invest  425,811  in Tata Consultancy Services on September 23, 2024 and sell it today you would lose (8,781) from holding Tata Consultancy Services or give up 2.06% of portfolio value over 90 days.

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

Tata Consultancy Services  vs.  Nazara Technologies 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 recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Nazara Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nazara Technologies Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Nazara Technologies is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Tata Consultancy and Nazara Technologies

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

The idea behind Tata Consultancy Services and Nazara Technologies 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.