Correlation Between Jindal Steel and Tata Consultancy

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

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

Diversification Opportunities for Jindal Steel and Tata Consultancy

0.5

Correlation Coefficient

Jindal Steel  Tata Consultancy

Very weak diversification

The 3 months correlation between Jindal and Tata is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Jindal Steel Power and Tata Consultancy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tata Consultancy Services and Jindal Steel 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 Jindal Steel Power are associated (or correlated) with Tata Consultancy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tata Consultancy Services has no effect on the direction of Jindal Steel i.e., Jindal Steel and Tata Consultancy go up and down completely randomly.

Pair Corralation between Jindal Steel and Tata Consultancy

Assuming the 90 days trading horizon Jindal Steel is expected to generate 1.05 times less return on investment than Tata Consultancy. In addition to that, Jindal Steel is 1.07 times more volatile than Tata Consultancy Services. It trades about 0.23 of its total potential returns per unit of risk. Tata Consultancy Services is currently generating about 0.25 per unit of volatility. If you would invest  401,950  in Tata Consultancy Services on September 19, 2024 and sell it today you would earn a total of  30,900  from holding Tata Consultancy Services or generate 7.69% return on investment over 90 days.

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

Jindal Steel Power  vs.  Tata Consultancy Services

Jindal Steel Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Jindal Steel Power has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Jindal Steel is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Tata Consultancy Services

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tata Consultancy Services are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Tata Consultancy is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Jindal Steel and Tata Consultancy

The main advantage of trading using opposite Jindal Steel and Tata Consultancy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Jindal Steel position performs unexpectedly, Tata Consultancy 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 Consultancy will offset losses from the drop in Tata Consultancy's long position.

The idea behind Jindal Steel Power and Tata Consultancy Services 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.

Check out your portfolio center.

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 Money Managers module to screen money managers from public funds and ETFs managed around the world.