Correlation Between Tech Mahindra and Texmaco Rail

Can any of the company-specific risk be diversified away by investing in both Tech Mahindra and Texmaco Rail 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 Tech Mahindra and Texmaco Rail into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Tech Mahindra Limited and Texmaco Rail Engineering, you can compare the effects of market volatilities on Tech Mahindra and Texmaco Rail 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 Tech Mahindra with a short position of Texmaco Rail. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tech Mahindra and Texmaco Rail.

Diversification Opportunities for Tech Mahindra and Texmaco Rail

-0.38

Correlation Coefficient

Tech Mahindra  Texmaco Rail

Very good diversification

The 3 months correlation between Tech and Texmaco is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Tech Mahindra Limited and Texmaco Rail Engineering in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Texmaco Rail Engineering and Tech Mahindra 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 Tech Mahindra Limited are associated (or correlated) with Texmaco Rail. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Texmaco Rail Engineering has no effect on the direction of Tech Mahindra i.e., Tech Mahindra and Texmaco Rail go up and down completely randomly.

Pair Corralation between Tech Mahindra and Texmaco Rail

Assuming the 90 days trading horizon Tech Mahindra Limited is expected to generate 0.58 times more return on investment than Texmaco Rail. However, Tech Mahindra Limited is 1.72 times less risky than Texmaco Rail. It trades about 0.08 of its potential returns per unit of risk. Texmaco Rail Engineering is currently generating about -0.01 per unit of risk. If you would invest  162,490  in Tech Mahindra Limited on September 5, 2024 and sell it today you would earn a total of  12,460  from holding Tech Mahindra Limited or generate 7.67% return on investment over 90 days.

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

Tech Mahindra Limited  vs.  Texmaco Rail Engineering

Tech Mahindra Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tech Mahindra Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady fundamental indicators, Tech Mahindra may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Texmaco Rail Engineering

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Texmaco Rail Engineering has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Texmaco Rail is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Tech Mahindra and Texmaco Rail

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

The idea behind Tech Mahindra Limited and Texmaco Rail Engineering 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.