Correlation Between Tata Consultancy and Parag Milk

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

Diversification Opportunities for Tata Consultancy and Parag Milk

0.39

Correlation Coefficient

Tata Consultancy  Parag Milk

Weak diversification

The 3 months correlation between Tata and Parag is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Tata Consultancy Services and Parag Milk Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Parag Milk Foods 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 Parag Milk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Parag Milk Foods has no effect on the direction of Tata Consultancy i.e., Tata Consultancy and Parag Milk go up and down completely randomly.

Pair Corralation between Tata Consultancy and Parag Milk

Assuming the 90 days trading horizon Tata Consultancy Services is expected to under-perform the Parag Milk. But the stock apears to be less risky and, when comparing its historical volatility, Tata Consultancy Services is 2.31 times less risky than Parag Milk. The stock trades about -0.69 of its potential returns per unit of risk. The Parag Milk Foods is currently generating about -0.28 of returns per unit of risk over similar time horizon. If you would invest  17,008  in Parag Milk Foods on December 2, 2024 and sell it today you would lose (2,567) from holding Parag Milk Foods or give up 15.09% of portfolio value over 90 days.

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

Tata Consultancy Services  vs.  Parag Milk Foods

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 weak 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.

Parag Milk Foods

Risk-Adjusted Performance

Very Weak

Over the last 90 days Parag Milk Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Tata Consultancy and Parag Milk

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

The idea behind Tata Consultancy Services and Parag Milk Foods 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.