Correlation Between Tata Consultancy and California Software

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

Diversification Opportunities for Tata Consultancy and California Software

-0.31

Correlation Coefficient

Tata Consultancy  California Software

Very good diversification

The 3 months correlation between Tata and California is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Tata Consultancy Services and California Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on California Software 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 California Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of California Software has no effect on the direction of Tata Consultancy i.e., Tata Consultancy and California Software go up and down completely randomly.

Pair Corralation between Tata Consultancy and California Software

Assuming the 90 days trading horizon Tata Consultancy Services is expected to under-perform the California Software. But the stock apears to be less risky and, when comparing its historical volatility, Tata Consultancy Services is 2.62 times less risky than California Software. The stock trades about -0.03 of its potential returns per unit of risk. The California Software is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1,162  in California Software on April 20, 2025 and sell it today you would earn a total of  494.00  from holding California Software or generate 42.51% return on investment over 90 days.

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

Tata Consultancy Services  vs.  California Software

Tata Consultancy Services

Risk-Adjusted Performance

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.

California Software

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in California Software are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, California Software unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tata Consultancy and California Software

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

The idea behind Tata Consultancy Services and California Software 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.

Check out your portfolio center.

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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.