Correlation Between Tata Steel and Rayong Wire
Can any of the company-specific risk be diversified away by investing in both Tata Steel and Rayong Wire 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 Steel and Rayong Wire into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tata Steel Public and Rayong Wire Industries, you can compare the effects of market volatilities on Tata Steel and Rayong Wire 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 Steel with a short position of Rayong Wire. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tata Steel and Rayong Wire.
Diversification Opportunities for Tata Steel and Rayong Wire
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Tata and Rayong is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Tata Steel Public and Rayong Wire Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rayong Wire Industries and Tata 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 Tata Steel Public are associated (or correlated) with Rayong Wire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rayong Wire Industries has no effect on the direction of Tata Steel i.e., Tata Steel and Rayong Wire go up and down completely randomly.
Pair Corralation between Tata Steel and Rayong Wire
Assuming the 90 days trading horizon Tata Steel Public is expected to generate 0.72 times more return on investment than Rayong Wire. However, Tata Steel Public is 1.39 times less risky than Rayong Wire. It trades about -0.08 of its potential returns per unit of risk. Rayong Wire Industries is currently generating about -0.09 per unit of risk. If you would invest 68.00 in Tata Steel Public on October 26, 2024 and sell it today you would lose (9.00) from holding Tata Steel Public or give up 13.24% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Tata Steel Public vs. Rayong Wire Industries
Performance |
| Timeline |
| Tata Steel Public |
| Rayong Wire Industries |
Tata Steel and Rayong Wire Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tata Steel and Rayong Wire
The main advantage of trading using opposite Tata Steel and Rayong Wire positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tata Steel position performs unexpectedly, Rayong Wire 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 Rayong Wire will offset losses from the drop in Rayong Wire's long position.| Tata Steel vs. Thai Metal Drum | Tata Steel vs. Thantawan Industry Public | Tata Steel vs. Univanich Palm Oil | Tata Steel vs. Union Plastic Public |
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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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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