Correlation Between Ebro Foods and Tata Steel

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

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

Diversification Opportunities for Ebro Foods and Tata Steel

-0.18

Correlation Coefficient

Ebro Foods  Tata Steel

Good diversification

The 3 months correlation between Ebro and Tata is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Ebro Foods 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 Ebro Foods 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 Ebro Foods 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 Ebro Foods i.e., Ebro Foods and Tata Steel go up and down completely randomly.

Pair Corralation between Ebro Foods and Tata Steel

Assuming the 90 days trading horizon Ebro Foods is expected to generate 0.27 times more return on investment than Tata Steel. However, Ebro Foods is 3.65 times less risky than Tata Steel. It trades about 0.02 of its potential returns per unit of risk. Tata Steel Limited is currently generating about -0.06 per unit of risk. If you would invest  1,580  in Ebro Foods on September 22, 2024 and sell it today you would earn a total of  7.00  from holding Ebro Foods or generate 0.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Ebro Foods  vs.  Tata Steel Limited

Ebro Foods

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ebro Foods are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Ebro Foods is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Tata Steel Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tata Steel Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's essential indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Ebro Foods and Tata Steel

The main advantage of trading using opposite Ebro Foods and Tata Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ebro Foods 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 Ebro Foods 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.