Correlation Between HDFC Asset and Tata Steel

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

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

Diversification Opportunities for HDFC Asset and Tata Steel

0.32

Correlation Coefficient

HDFC Asset  Tata Steel

Weak diversification

The 3 months correlation between HDFC and Tata is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Asset Management 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 HDFC Asset 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 HDFC Asset Management 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 HDFC Asset i.e., HDFC Asset and Tata Steel go up and down completely randomly.

Pair Corralation between HDFC Asset and Tata Steel

Assuming the 90 days trading horizon HDFC Asset Management is expected to generate 1.42 times more return on investment than Tata Steel. However, HDFC Asset is 1.42 times more volatile than Tata Steel Limited. It trades about -0.02 of its potential returns per unit of risk. Tata Steel Limited is currently generating about -0.21 per unit of risk. If you would invest  429,400  in HDFC Asset Management on October 6, 2024 and sell it today you would lose (6,935) from holding HDFC Asset Management or give up 1.62% of portfolio value over 90 days.

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

HDFC Asset Management  vs.  Tata Steel Limited

HDFC Asset Management

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Asset Management are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, HDFC Asset is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

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. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with HDFC Asset and Tata Steel

The main advantage of trading using opposite HDFC Asset and Tata Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HDFC Asset 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 HDFC Asset Management 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.