Correlation Between Gujarat Lease and Tata Motors

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

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

Diversification Opportunities for Gujarat Lease and Tata Motors

0.16

Correlation Coefficient

Gujarat Lease  Tata Motors

Average diversification

The 3 months correlation between Gujarat and Tata is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Gujarat Lease Financing and Tata Motors Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tata Motors Limited and Gujarat Lease 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 Gujarat Lease Financing are associated (or correlated) with Tata Motors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tata Motors Limited has no effect on the direction of Gujarat Lease i.e., Gujarat Lease and Tata Motors go up and down completely randomly.

Pair Corralation between Gujarat Lease and Tata Motors

Assuming the 90 days trading horizon Gujarat Lease Financing is expected to generate 1.6 times more return on investment than Tata Motors. However, Gujarat Lease is 1.6 times more volatile than Tata Motors Limited. It trades about 0.12 of its potential returns per unit of risk. Tata Motors Limited is currently generating about -0.32 per unit of risk. If you would invest  797.00  in Gujarat Lease Financing on September 4, 2024 and sell it today you would earn a total of  144.00  from holding Gujarat Lease Financing or generate 18.07% return on investment over 90 days.

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

Gujarat Lease Financing  vs.  Tata Motors Limited

Gujarat Lease Financing

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gujarat Lease Financing are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Gujarat Lease unveiled solid returns over the last few months and may actually be approaching a breakup point.

Tata Motors Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tata Motors Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Gujarat Lease and Tata Motors

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

The idea behind Gujarat Lease Financing and Tata Motors Limited 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.