Correlation Between NRB Industrial and Tata Chemicals

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

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

Diversification Opportunities for NRB Industrial and Tata Chemicals

0.28

Correlation Coefficient

NRB Industrial  Tata Chemicals

Modest diversification

The 3 months correlation between NRB and Tata is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding NRB Industrial Bearings and Tata Chemicals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tata Chemicals and NRB Industrial 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 NRB Industrial Bearings are associated (or correlated) with Tata Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tata Chemicals has no effect on the direction of NRB Industrial i.e., NRB Industrial and Tata Chemicals go up and down completely randomly.

Pair Corralation between NRB Industrial and Tata Chemicals

Assuming the 90 days trading horizon NRB Industrial Bearings is expected to under-perform the Tata Chemicals. In addition to that, NRB Industrial is 1.34 times more volatile than Tata Chemicals Limited. It trades about -0.18 of its total potential returns per unit of risk. Tata Chemicals Limited is currently generating about -0.02 per unit of volatility. If you would invest  109,110  in Tata Chemicals Limited on September 29, 2024 and sell it today you would lose (4,475) from holding Tata Chemicals Limited or give up 4.1% of portfolio value over 90 days.

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

NRB Industrial Bearings  vs.  Tata Chemicals Limited

NRB Industrial Bearings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NRB Industrial Bearings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak 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.

Tata Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with NRB Industrial and Tata Chemicals

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

The idea behind NRB Industrial Bearings and Tata Chemicals 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.

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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.