Correlation Between VA Tech and Tata Consultancy

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

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

Diversification Opportunities for VA Tech and Tata Consultancy

-0.8

Correlation Coefficient

VA Tech  Tata Consultancy

Pay attention - limited upside

The 3 months correlation between WABAG and Tata is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding VA Tech Wabag and Tata Consultancy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tata Consultancy Services and VA Tech 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 VA Tech Wabag are associated (or correlated) with Tata Consultancy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tata Consultancy Services has no effect on the direction of VA Tech i.e., VA Tech and Tata Consultancy go up and down completely randomly.

Pair Corralation between VA Tech and Tata Consultancy

Assuming the 90 days trading horizon VA Tech Wabag is expected to generate 2.45 times more return on investment than Tata Consultancy. However, VA Tech is 2.45 times more volatile than Tata Consultancy Services. It trades about 0.21 of its potential returns per unit of risk. Tata Consultancy Services is currently generating about -0.05 per unit of risk. If you would invest  127,695  in VA Tech Wabag on September 4, 2024 and sell it today you would earn a total of  57,225  from holding VA Tech Wabag or generate 44.81% return on investment over 90 days.

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

VA Tech Wabag  vs.  Tata Consultancy Services

VA Tech Wabag

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in VA Tech Wabag are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady fundamental drivers, VA Tech displayed solid returns over the last few months and may actually be approaching a breakup point.

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 newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with VA Tech and Tata Consultancy

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

The idea behind VA Tech Wabag and Tata Consultancy Services 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.