Correlation Between EMC Public and Tata Steel

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

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

Diversification Opportunities for EMC Public and Tata Steel

0.26

Correlation Coefficient

EMC Public  Tata Steel

Modest diversification

The 3 months correlation between EMC and Tata is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding EMC Public and Tata Steel Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tata Steel Public and EMC Public 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 EMC Public 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 Public has no effect on the direction of EMC Public i.e., EMC Public and Tata Steel go up and down completely randomly.

Pair Corralation between EMC Public and Tata Steel

Assuming the 90 days trading horizon EMC Public is expected to generate 2.82 times more return on investment than Tata Steel. However, EMC Public is 2.82 times more volatile than Tata Steel Public. It trades about 0.01 of its potential returns per unit of risk. Tata Steel Public is currently generating about -0.16 per unit of risk. If you would invest  7.00  in EMC Public on December 27, 2024 and sell it today you would lose (1.00) from holding EMC Public or give up 14.29% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

EMC Public  vs.  Tata Steel Public

EMC Public

Risk-Adjusted Performance

Weak

Over the last 90 days EMC Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, EMC Public is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Tata Steel Public

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tata Steel Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's forward-looking signals remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with EMC Public and Tata Steel

The main advantage of trading using opposite EMC Public and Tata Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EMC Public 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 EMC Public and Tata Steel Public 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.