Correlation Between Tata Investment and BF Utilities

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

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

Diversification Opportunities for Tata Investment and BF Utilities

-0.03

Correlation Coefficient

Tata Investment  BF Utilities

Good diversification

The 3 months correlation between Tata and BFUTILITIE is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Tata Investment and BF Utilities Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BF Utilities Limited and Tata Investment 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 Investment are associated (or correlated) with BF Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BF Utilities Limited has no effect on the direction of Tata Investment i.e., Tata Investment and BF Utilities go up and down completely randomly.

Pair Corralation between Tata Investment and BF Utilities

Assuming the 90 days trading horizon Tata Investment is expected to generate 70.76 times less return on investment than BF Utilities. But when comparing it to its historical volatility, Tata Investment is 2.46 times less risky than BF Utilities. It trades about 0.0 of its potential returns per unit of risk. BF Utilities Limited is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  80,025  in BF Utilities Limited on September 13, 2024 and sell it today you would earn a total of  12,965  from holding BF Utilities Limited or generate 16.2% return on investment over 90 days.

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

Tata Investment  vs.  BF Utilities Limited

Tata Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tata Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable technical and fundamental indicators, Tata Investment is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

BF Utilities Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BF Utilities Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, BF Utilities demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tata Investment and BF Utilities

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

The idea behind Tata Investment and BF Utilities 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..