Correlation Between Tata Motors and Persistent Systems

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

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

Diversification Opportunities for Tata Motors and Persistent Systems

-0.76

Correlation Coefficient

Tata Motors  Persistent Systems

Pay attention - limited upside

The 3 months correlation between Tata and Persistent is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Tata Motors Limited and Persistent Systems Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Persistent Systems and Tata Motors 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 Motors Limited are associated (or correlated) with Persistent Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Persistent Systems has no effect on the direction of Tata Motors i.e., Tata Motors and Persistent Systems go up and down completely randomly.

Pair Corralation between Tata Motors and Persistent Systems

Assuming the 90 days trading horizon Tata Motors Limited is expected to under-perform the Persistent Systems. But the stock apears to be less risky and, when comparing its historical volatility, Tata Motors Limited is 1.56 times less risky than Persistent Systems. The stock trades about -0.23 of its potential returns per unit of risk. The Persistent Systems Limited is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  535,100  in Persistent Systems Limited on September 13, 2024 and sell it today you would earn a total of  100,875  from holding Persistent Systems Limited or generate 18.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	96.83%
Values	Daily Returns

Tata Motors Limited  vs.  Persistent Systems Limited

Tata Motors Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tata Motors Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating 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.

Persistent Systems

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Persistent Systems Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Persistent Systems unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tata Motors and Persistent Systems

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

The idea behind Tata Motors Limited and Persistent Systems 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.