Correlation Between City Steel and Tata Steel

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Can any of the company-specific risk be diversified away by investing in both City Steel and Tata Steel 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 City Steel and Tata Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between City Steel Public and Tata Steel Public, you can compare the effects of market volatilities on City Steel and Tata Steel 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 City Steel with a short position of Tata Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of City Steel and Tata Steel.

Diversification Opportunities for City Steel and Tata Steel

CityTataDiversified AwayCityTataDiversified Away100%
0.69
  Correlation Coefficient

Poor diversification

The 3 months correlation between City and Tata is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding City Steel Public and Tata Steel Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tata Steel Public and City Steel 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 City Steel Public are associated (or correlated) with Tata Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tata Steel Public has no effect on the direction of City Steel i.e., City Steel and Tata Steel go up and down completely randomly.

Pair Corralation between City Steel and Tata Steel

Assuming the 90 days trading horizon City Steel Public is expected to generate 0.8 times more return on investment than Tata Steel. However, City Steel Public is 1.24 times less risky than Tata Steel. It trades about -0.07 of its potential returns per unit of risk. Tata Steel Public is currently generating about -0.19 per unit of risk. If you would invest  189.00  in City Steel Public on December 3, 2024 and sell it today you would lose (20.00) from holding City Steel Public or give up 10.58% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

City Steel Public  vs.  Tata Steel Public

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -30-25-20-15-10-505
JavaScript chart by amCharts 3.21.15CITY TSTH
       Timeline  
City Steel Public 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days City Steel Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's forward-looking signals remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.
JavaScript chart by amCharts 3.21.15JanFebFebMar1.61.651.71.751.81.851.9
Tata Steel Public 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Tata Steel Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's forward-looking signals remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.
JavaScript chart by amCharts 3.21.15JanFebFebMar0.50.550.60.650.7

City Steel and Tata Steel Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-3.83-2.87-1.91-0.940.00.91.792.693.59 0.0400.0450.0500.0550.0600.0650.070
JavaScript chart by amCharts 3.21.15CITY TSTH
       Returns  

Pair Trading with City Steel and Tata Steel

The main advantage of trading using opposite City Steel and Tata Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if City Steel position performs unexpectedly, Tata Steel 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 Steel will offset losses from the drop in Tata Steel's long position.
The idea behind City Steel Public and Tata Steel Public 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.

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