Correlation Between TMT Steel and Tata Steel
Can any of the company-specific risk be diversified away by investing in both TMT 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 TMT 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 TMT Steel Public and Tata Steel Public, you can compare the effects of market volatilities on TMT 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 TMT Steel with a short position of Tata Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of TMT Steel and Tata Steel.
Diversification Opportunities for TMT Steel and Tata Steel
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between TMT and Tata is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding TMT 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 TMT 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 TMT 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 TMT Steel i.e., TMT Steel and Tata Steel go up and down completely randomly.
Pair Corralation between TMT Steel and Tata Steel
Assuming the 90 days trading horizon TMT Steel is expected to generate 1.04 times less return on investment than Tata Steel. In addition to that, TMT Steel is 1.0 times more volatile than Tata Steel Public. It trades about 0.11 of its total potential returns per unit of risk. Tata Steel Public is currently generating about 0.12 per unit of volatility. If you would invest 65.00 in Tata Steel Public on August 28, 2024 and sell it today you would earn a total of 5.00 from holding Tata Steel Public or generate 7.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
TMT Steel Public vs. Tata Steel Public
Performance |
| Timeline |
| TMT Steel Public |
| Tata Steel Public |
TMT Steel and Tata Steel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with TMT Steel and Tata Steel
The main advantage of trading using opposite TMT Steel and Tata Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TMT 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.| TMT Steel vs. PTT Public | TMT Steel vs. PTT Exploration and | TMT Steel vs. CP ALL Public | TMT Steel vs. Kasikornbank Public |
| Tata Steel vs. PTT Public | Tata Steel vs. PTT Exploration and | Tata Steel vs. CP ALL Public | Tata Steel vs. Kasikornbank Public |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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