Correlation Between State Street and Tata Steel

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

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

Diversification Opportunities for State Street and Tata Steel

-0.7

Correlation Coefficient

State Street  Tata Steel

Excellent diversification

The 3 months correlation between State and Tata is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding State Street Corp 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 State Street 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 State Street Corp 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 State Street i.e., State Street and Tata Steel go up and down completely randomly.

Pair Corralation between State Street and Tata Steel

Assuming the 90 days trading horizon State Street Corp is expected to under-perform the Tata Steel. But the stock apears to be less risky and, when comparing its historical volatility, State Street Corp is 1.08 times less risky than Tata Steel. The stock trades about -0.07 of its potential returns per unit of risk. The Tata Steel Limited is currently generating about 0.12 of returns per unit of risk over similar time horizon. 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	100.0%
Values	Daily Returns

State Street Corp  vs.  Tata Steel Limited

State Street Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days State Street Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains 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 State Street and Tata Steel

The main advantage of trading using opposite State Street and Tata Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if State Street 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 State Street Corp 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 Commodity Directory module to find actively traded commodities issued by global exchanges.