Correlation Between Tata Communications and Lakshmi Precision

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

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

Diversification Opportunities for Tata Communications and Lakshmi Precision

0.65

Correlation Coefficient

Tata Communications  Lakshmi Precision

Poor diversification

The 3 months correlation between Tata and Lakshmi is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Tata Communications Limited and Lakshmi Precision Screws in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lakshmi Precision Screws and Tata Communications 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 Tata Communications Limited are associated (or correlated) with Lakshmi Precision. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lakshmi Precision Screws has no effect on the direction of Tata Communications i.e., Tata Communications and Lakshmi Precision go up and down completely randomly.

Pair Corralation between Tata Communications and Lakshmi Precision

Assuming the 90 days trading horizon Tata Communications Limited is expected to under-perform the Lakshmi Precision. But the stock apears to be less risky and, when comparing its historical volatility, Tata Communications Limited is 1.63 times less risky than Lakshmi Precision. The stock trades about -0.09 of its potential returns per unit of risk. The Lakshmi Precision Screws is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  742.00  in Lakshmi Precision Screws on September 13, 2024 and sell it today you would lose (72.00) from holding Lakshmi Precision Screws or give up 9.7% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

Tata Communications Limited  vs.  Lakshmi Precision Screws

Tata Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tata Communications Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Lakshmi Precision Screws

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lakshmi Precision Screws has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Tata Communications and Lakshmi Precision

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

The idea behind Tata Communications Limited and Lakshmi Precision Screws 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 Transaction History module to view history of all your transactions and understand their impact on performance.