Correlation Between Tata Communications and HDFC Life

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

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

Diversification Opportunities for Tata Communications and HDFC Life

0.8

Correlation Coefficient

Tata Communications  HDFC Life

Very poor diversification

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

Pair Corralation between Tata Communications and HDFC Life

Assuming the 90 days trading horizon Tata Communications is expected to generate 1.17 times less return on investment than HDFC Life. In addition to that, Tata Communications is 1.09 times more volatile than HDFC Life Insurance. It trades about 0.17 of its total potential returns per unit of risk. HDFC Life Insurance is currently generating about 0.22 per unit of volatility. If you would invest  66,420  in HDFC Life Insurance on April 5, 2025 and sell it today you would earn a total of  12,165  from holding HDFC Life Insurance or generate 18.32% return on investment over 90 days.

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

Tata Communications Limited  vs.  HDFC Life Insurance

Tata Communications

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tata Communications Limited are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Tata Communications displayed solid returns over the last few months and may actually be approaching a breakup point.

HDFC Life Insurance

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Life Insurance are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent forward indicators, HDFC Life reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tata Communications and HDFC Life

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

The idea behind Tata Communications Limited and HDFC Life Insurance 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.