Correlation Between Tata Consultancy and NBCC

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

Diversification Opportunities for Tata Consultancy and NBCC

0.78

Correlation Coefficient

Tata Consultancy  NBCC

Poor diversification

The 3 months correlation between Tata and NBCC is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Tata Consultancy Services and NBCC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NBCC 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 NBCC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NBCC Limited has no effect on the direction of Tata Consultancy i.e., Tata Consultancy and NBCC go up and down completely randomly.

Pair Corralation between Tata Consultancy and NBCC

Assuming the 90 days trading horizon Tata Consultancy Services is expected to under-perform the NBCC. But the stock apears to be less risky and, when comparing its historical volatility, Tata Consultancy Services is 2.37 times less risky than NBCC. The stock trades about -0.13 of its potential returns per unit of risk. The NBCC Limited is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  8,902  in NBCC Limited on December 29, 2024 and sell it today you would lose (713.00) from holding NBCC Limited or give up 8.01% of portfolio value over 90 days.

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

Tata Consultancy Services  vs.  NBCC Limited

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 latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

NBCC Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days NBCC Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, NBCC is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Tata Consultancy and NBCC

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

The idea behind Tata Consultancy Services and NBCC 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..