Correlation Between Tata Consultancy and Repco Home

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

Diversification Opportunities for Tata Consultancy and Repco Home

0.03

Correlation Coefficient

Tata Consultancy  Repco Home

Significant diversification

The 3 months correlation between Tata and Repco is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Tata Consultancy Services and Repco Home Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Repco Home Finance 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 Repco Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Repco Home Finance has no effect on the direction of Tata Consultancy i.e., Tata Consultancy and Repco Home go up and down completely randomly.

Pair Corralation between Tata Consultancy and Repco Home

Assuming the 90 days trading horizon Tata Consultancy Services is expected to generate 0.72 times more return on investment than Repco Home. However, Tata Consultancy Services is 1.38 times less risky than Repco Home. It trades about 0.04 of its potential returns per unit of risk. Repco Home Finance is currently generating about -0.08 per unit of risk. If you would invest  410,398  in Tata Consultancy Services on October 25, 2024 and sell it today you would earn a total of  5,262  from holding Tata Consultancy Services or generate 1.28% return on investment over 90 days.

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

Tata Consultancy Services  vs.  Repco Home Finance

Tata Consultancy Services

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tata Consultancy Services are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Tata Consultancy is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Repco Home Finance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Repco Home Finance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Tata Consultancy and Repco Home

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

The idea behind Tata Consultancy Services and Repco Home Finance 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.

Check out your portfolio center.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.