Correlation Between Ami Organics and Tata Consultancy

Can any of the company-specific risk be diversified away by investing in both Ami Organics and Tata Consultancy 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 Ami Organics and Tata Consultancy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ami Organics Limited and Tata Consultancy Services, you can compare the effects of market volatilities on Ami Organics and Tata Consultancy 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 Ami Organics with a short position of Tata Consultancy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ami Organics and Tata Consultancy.

Diversification Opportunities for Ami Organics and Tata Consultancy

-0.5

Correlation Coefficient

Ami Organics  Tata Consultancy

Very good diversification

The 3 months correlation between Ami and Tata is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Ami Organics Limited and Tata Consultancy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tata Consultancy Services and Ami Organics 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 Ami Organics Limited are associated (or correlated) with Tata Consultancy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tata Consultancy Services has no effect on the direction of Ami Organics i.e., Ami Organics and Tata Consultancy go up and down completely randomly.

Pair Corralation between Ami Organics and Tata Consultancy

Assuming the 90 days trading horizon Ami Organics Limited is expected to generate 1.58 times more return on investment than Tata Consultancy. However, Ami Organics is 1.58 times more volatile than Tata Consultancy Services. It trades about 0.26 of its potential returns per unit of risk. Tata Consultancy Services is currently generating about 0.25 per unit of risk. If you would invest  197,245  in Ami Organics Limited on September 4, 2024 and sell it today you would earn a total of  28,705  from holding Ami Organics Limited or generate 14.55% return on investment over 90 days.

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

Ami Organics Limited  vs.  Tata Consultancy Services

Ami Organics Limited

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ami Organics Limited are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Ami Organics sustained solid returns over the last few months and may actually be approaching a breakup point.

Tata Consultancy Services

Risk-Adjusted Performance

0 of 100

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 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.

Pair Trading with Ami Organics and Tata Consultancy

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

The idea behind Ami Organics Limited and Tata Consultancy Services 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.