Correlation Between Alliance Data and Tata Steel

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

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

Diversification Opportunities for Alliance Data and Tata Steel

-0.77

Correlation Coefficient

Alliance Data  Tata Steel

Pay attention - limited upside

The 3 months correlation between Alliance and Tata is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Alliance Data Systems and Tata Steel Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tata Steel Limited and Alliance Data 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 Alliance Data Systems 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 Limited has no effect on the direction of Alliance Data i.e., Alliance Data and Tata Steel go up and down completely randomly.

Pair Corralation between Alliance Data and Tata Steel

Assuming the 90 days trading horizon Alliance Data Systems is expected to under-perform the Tata Steel. In addition to that, Alliance Data is 1.54 times more volatile than Tata Steel Limited. It trades about -0.1 of its total potential returns per unit of risk. Tata Steel Limited is currently generating about 0.12 per unit of volatility. If you would invest  1,580  in Tata Steel Limited on December 30, 2024 and sell it today you would earn a total of  225.00  from holding Tata Steel Limited or generate 14.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	92.31%
Values	Daily Returns

Alliance Data Systems  vs.  Tata Steel Limited

Alliance Data Systems

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alliance Data Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Tata Steel Limited

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tata Steel Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Tata Steel disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alliance Data and Tata Steel

The main advantage of trading using opposite Alliance Data and Tata Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alliance Data 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 Alliance Data Systems and Tata Steel Limited 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.