Correlation Between Central Asia and Tata Steel

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

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

Diversification Opportunities for Central Asia and Tata Steel

0.43

Correlation Coefficient

Central Asia  Tata Steel

Very weak diversification

The 3 months correlation between Central and Tata is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Central Asia Metals 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 Central Asia 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 Central Asia Metals 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 Central Asia i.e., Central Asia and Tata Steel go up and down completely randomly.

Pair Corralation between Central Asia and Tata Steel

Assuming the 90 days trading horizon Central Asia is expected to generate 1.37 times less return on investment than Tata Steel. In addition to that, Central Asia is 1.06 times more volatile than Tata Steel Limited. It trades about 0.08 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 Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Central Asia Metals  vs.  Tata Steel Limited

Central Asia Metals

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Central Asia Metals are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Central Asia may actually be approaching a critical reversion point that can send shares even higher in April 2025.

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 Central Asia and Tata Steel

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