Correlation Between Tata Consultancy and PTC INDUSTRIES

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

Diversification Opportunities for Tata Consultancy and PTC INDUSTRIES

0.75

Correlation Coefficient

Tata Consultancy  PTC INDUSTRIES

Poor diversification

The 3 months correlation between Tata and PTC is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Tata Consultancy Services and PTC INDUSTRIES LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PTC INDUSTRIES LTD 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 PTC INDUSTRIES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PTC INDUSTRIES LTD has no effect on the direction of Tata Consultancy i.e., Tata Consultancy and PTC INDUSTRIES go up and down completely randomly.

Pair Corralation between Tata Consultancy and PTC INDUSTRIES

Assuming the 90 days trading horizon Tata Consultancy Services is expected to under-perform the PTC INDUSTRIES. But the stock apears to be less risky and, when comparing its historical volatility, Tata Consultancy Services is 2.57 times less risky than PTC INDUSTRIES. The stock trades about -0.13 of its potential returns per unit of risk. The PTC INDUSTRIES LTD is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,349,870  in PTC INDUSTRIES LTD on December 29, 2024 and sell it today you would earn a total of  144,595  from holding PTC INDUSTRIES LTD or generate 10.71% return on investment over 90 days.

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

Tata Consultancy Services  vs.  PTC INDUSTRIES LTD

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.

PTC INDUSTRIES LTD

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PTC INDUSTRIES LTD are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain fundamental indicators, PTC INDUSTRIES displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tata Consultancy and PTC INDUSTRIES

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

The idea behind Tata Consultancy Services and PTC INDUSTRIES LTD 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.