Correlation Between Tata Investment and Newgen Software

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

By analyzing existing cross correlation between Tata Investment and Newgen Software Technologies, you can compare the effects of market volatilities on Tata Investment and Newgen Software 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 Newgen Software. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tata Investment and Newgen Software.

Diversification Opportunities for Tata Investment and Newgen Software

-0.23

Correlation Coefficient

Tata Investment  Newgen Software

Very good diversification

The 3 months correlation between Tata and Newgen is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Tata Investment and Newgen Software Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Newgen Software Tech 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 Newgen Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Newgen Software Tech has no effect on the direction of Tata Investment i.e., Tata Investment and Newgen Software go up and down completely randomly.

Pair Corralation between Tata Investment and Newgen Software

Assuming the 90 days trading horizon Tata Investment is expected to under-perform the Newgen Software. But the stock apears to be less risky and, when comparing its historical volatility, Tata Investment is 2.09 times less risky than Newgen Software. The stock trades about -0.05 of its potential returns per unit of risk. The Newgen Software Technologies is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  107,990  in Newgen Software Technologies on September 3, 2024 and sell it today you would earn a total of  10,060  from holding Newgen Software Technologies or generate 9.32% 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.  Newgen Software Technologies

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 recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Newgen Software Tech

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Newgen Software Technologies are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain technical and fundamental indicators, Newgen Software sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tata Investment and Newgen Software

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

The idea behind Tata Investment and Newgen Software Technologies 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.