Correlation Between Tata Consultancy and Taj GVK

Can any of the company-specific risk be diversified away by investing in both Tata Consultancy and Taj GVK 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 Taj GVK 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 Taj GVK Hotels, you can compare the effects of market volatilities on Tata Consultancy and Taj GVK 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 Taj GVK. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tata Consultancy and Taj GVK.

Diversification Opportunities for Tata Consultancy and Taj GVK

0.61

Correlation Coefficient

Tata Consultancy  Taj GVK

Poor diversification

The 3 months correlation between Tata and Taj is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Tata Consultancy Services and Taj GVK Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taj GVK Hotels 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 Taj GVK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taj GVK Hotels has no effect on the direction of Tata Consultancy i.e., Tata Consultancy and Taj GVK go up and down completely randomly.

Pair Corralation between Tata Consultancy and Taj GVK

Assuming the 90 days trading horizon Tata Consultancy is expected to generate 16.65 times less return on investment than Taj GVK. But when comparing it to its historical volatility, Tata Consultancy Services is 1.88 times less risky than Taj GVK. It trades about 0.02 of its potential returns per unit of risk. Taj GVK Hotels is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  30,940  in Taj GVK Hotels on September 19, 2024 and sell it today you would earn a total of  7,910  from holding Taj GVK Hotels or generate 25.57% return on investment over 90 days.

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

Tata Consultancy Services  vs.  Taj GVK Hotels

Tata Consultancy Services

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tata Consultancy Services are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Tata Consultancy is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Taj GVK Hotels

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Taj GVK Hotels are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain technical and fundamental indicators, Taj GVK sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tata Consultancy and Taj GVK

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

The idea behind Tata Consultancy Services and Taj GVK Hotels 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.