Correlation Between Eastern Technical and Tata Steel

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

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

Diversification Opportunities for Eastern Technical and Tata Steel

0.33

Correlation Coefficient

Eastern Technical  Tata Steel

Weak diversification

The 3 months correlation between Eastern and Tata is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Eastern Technical Engineering 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 Eastern Technical 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 Eastern Technical Engineering 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 Eastern Technical i.e., Eastern Technical and Tata Steel go up and down completely randomly.

Pair Corralation between Eastern Technical and Tata Steel

Assuming the 90 days trading horizon Eastern Technical is expected to generate 1.03 times less return on investment than Tata Steel. But when comparing it to its historical volatility, Eastern Technical Engineering is 1.0 times less risky than Tata Steel. It trades about 0.08 of its potential returns per unit of risk. Tata Steel Public is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  75.00  in Tata Steel Public on September 22, 2024 and sell it today you would lose (9.00) from holding Tata Steel Public or give up 12.0% of portfolio value over 90 days.

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

Eastern Technical Engineering  vs.  Tata Steel Public

Eastern Technical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eastern Technical Engineering 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 technical and fundamental indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Tata Steel Public

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tata Steel Public are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Tata Steel may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Eastern Technical and Tata Steel

The main advantage of trading using opposite Eastern Technical and Tata Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eastern Technical 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 Eastern Technical Engineering 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.