Correlation Between Tata Investment and Wipro

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

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

Diversification Opportunities for Tata Investment and Wipro

-0.22

Correlation Coefficient

Tata Investment  Wipro

Very good diversification

The 3 months correlation between Tata and Wipro is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Tata Investment and Wipro Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wipro 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 Wipro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wipro Limited has no effect on the direction of Tata Investment i.e., Tata Investment and Wipro go up and down completely randomly.

Pair Corralation between Tata Investment and Wipro

Assuming the 90 days trading horizon Tata Investment is expected to generate 22.05 times less return on investment than Wipro. But when comparing it to its historical volatility, Tata Investment is 18.19 times less risky than Wipro. It trades about 0.09 of its potential returns per unit of risk. Wipro Limited is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  27,090  in Wipro Limited on September 5, 2024 and sell it today you would earn a total of  2,075  from holding Wipro Limited or generate 7.66% 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.  Wipro 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 current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Wipro Limited

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Wipro Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Wipro displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tata Investment and Wipro

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

The idea behind Tata Investment and Wipro 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.