Correlation Between Tera Software and Indian Hotels

Can any of the company-specific risk be diversified away by investing in both Tera Software and Indian Hotels 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 Tera Software and Indian Hotels into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Tera Software Limited and The Indian Hotels, you can compare the effects of market volatilities on Tera Software and Indian Hotels 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 Tera Software with a short position of Indian Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tera Software and Indian Hotels.

Diversification Opportunities for Tera Software and Indian Hotels

-0.1

Correlation Coefficient

Tera Software  Indian Hotels

Good diversification

The 3 months correlation between Tera and Indian is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Tera Software Limited and The Indian Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indian Hotels and Tera Software 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 Tera Software Limited are associated (or correlated) with Indian Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indian Hotels has no effect on the direction of Tera Software i.e., Tera Software and Indian Hotels go up and down completely randomly.

Pair Corralation between Tera Software and Indian Hotels

Assuming the 90 days trading horizon Tera Software is expected to generate 6.29 times less return on investment than Indian Hotels. In addition to that, Tera Software is 2.05 times more volatile than The Indian Hotels. It trades about 0.03 of its total potential returns per unit of risk. The Indian Hotels is currently generating about 0.35 per unit of volatility. If you would invest  72,880  in The Indian Hotels on December 26, 2024 and sell it today you would earn a total of  9,975  from holding The Indian Hotels or generate 13.69% return on investment over 90 days.

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

Tera Software Limited  vs.  The Indian Hotels

Tera Software Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tera Software Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Tera Software is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Indian Hotels

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Indian Hotels has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Indian Hotels is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Tera Software and Indian Hotels

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

The idea behind Tera Software Limited and The Indian Hotels 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.