Correlation Between Tata Chemicals and Generic Engineering

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

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

Diversification Opportunities for Tata Chemicals and Generic Engineering

0.88

Correlation Coefficient

Tata Chemicals  Generic Engineering

Very poor diversification

The 3 months correlation between Tata and Generic is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Tata Chemicals Limited and Generic Engineering Constructi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Generic Engineering and Tata Chemicals 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 Chemicals Limited are associated (or correlated) with Generic Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Generic Engineering has no effect on the direction of Tata Chemicals i.e., Tata Chemicals and Generic Engineering go up and down completely randomly.

Pair Corralation between Tata Chemicals and Generic Engineering

Assuming the 90 days trading horizon Tata Chemicals is expected to generate 1.83 times less return on investment than Generic Engineering. But when comparing it to its historical volatility, Tata Chemicals Limited is 2.53 times less risky than Generic Engineering. It trades about 0.12 of its potential returns per unit of risk. Generic Engineering Construction is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  3,464  in Generic Engineering Construction on April 24, 2025 and sell it today you would earn a total of  634.00  from holding Generic Engineering Construction or generate 18.3% return on investment over 90 days.

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

Tata Chemicals Limited  vs.  Generic Engineering Constructi

Tata Chemicals

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tata Chemicals Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent technical indicators, Tata Chemicals may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Generic Engineering

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Generic Engineering Construction are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental indicators, Generic Engineering sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tata Chemicals and Generic Engineering

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

The idea behind Tata Chemicals Limited and Generic Engineering Construction 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.