Correlation Between Tata Consultancy and Procter Gamble

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

By analyzing existing cross correlation between Tata Consultancy Services and Procter Gamble Health, you can compare the effects of market volatilities on Tata Consultancy and Procter Gamble 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 Consultancy with a short position of Procter Gamble. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tata Consultancy and Procter Gamble.

Diversification Opportunities for Tata Consultancy and Procter Gamble

0.34

Correlation Coefficient

Tata Consultancy  Procter Gamble

Weak diversification

The 3 months correlation between Tata and Procter is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Tata Consultancy Services and Procter Gamble Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Procter Gamble Health and Tata Consultancy 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 Consultancy Services are associated (or correlated) with Procter Gamble. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Procter Gamble Health has no effect on the direction of Tata Consultancy i.e., Tata Consultancy and Procter Gamble go up and down completely randomly.

Pair Corralation between Tata Consultancy and Procter Gamble

Assuming the 90 days trading horizon Tata Consultancy Services is expected to under-perform the Procter Gamble. But the stock apears to be less risky and, when comparing its historical volatility, Tata Consultancy Services is 1.43 times less risky than Procter Gamble. The stock trades about -0.02 of its potential returns per unit of risk. The Procter Gamble Health is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  514,517  in Procter Gamble Health on September 13, 2024 and sell it today you would earn a total of  45,483  from holding Procter Gamble Health or generate 8.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Tata Consultancy Services  vs.  Procter Gamble Health

Tata Consultancy Services

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tata Consultancy Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Tata Consultancy is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Procter Gamble Health

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Procter Gamble Health are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Procter Gamble may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Tata Consultancy and Procter Gamble

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

The idea behind Tata Consultancy Services and Procter Gamble Health 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.