Correlation Between Maithan Alloys and Tata Chemicals

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

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

Diversification Opportunities for Maithan Alloys and Tata Chemicals

-0.53

Correlation Coefficient

Maithan Alloys  Tata Chemicals

Excellent diversification

The 3 months correlation between Maithan and Tata is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Maithan Alloys Limited and Tata Chemicals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tata Chemicals and Maithan Alloys 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 Maithan Alloys Limited are associated (or correlated) with Tata Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tata Chemicals has no effect on the direction of Maithan Alloys i.e., Maithan Alloys and Tata Chemicals go up and down completely randomly.

Pair Corralation between Maithan Alloys and Tata Chemicals

Assuming the 90 days trading horizon Maithan Alloys Limited is expected to under-perform the Tata Chemicals. But the stock apears to be less risky and, when comparing its historical volatility, Maithan Alloys Limited is 1.27 times less risky than Tata Chemicals. The stock trades about -0.05 of its potential returns per unit of risk. The Tata Chemicals Limited is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  108,415  in Tata Chemicals Limited on September 2, 2024 and sell it today you would earn a total of  2,760  from holding Tata Chemicals Limited or generate 2.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Maithan Alloys Limited  vs.  Tata Chemicals Limited

Maithan Alloys

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Maithan Alloys Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Maithan Alloys is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Tata Chemicals

Risk-Adjusted Performance

2 of 100

Weak

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

Pair Trading with Maithan Alloys and Tata Chemicals

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

The idea behind Maithan Alloys Limited and Tata Chemicals 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.