Correlation Between Polar Capital and Tata Steel

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

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

Diversification Opportunities for Polar Capital and Tata Steel

-0.64

Correlation Coefficient

Polar Capital  Tata Steel

Excellent diversification

The 3 months correlation between Polar and Tata is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Polar Capital Technology 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 Polar Capital 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 Polar Capital Technology 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 Polar Capital i.e., Polar Capital and Tata Steel go up and down completely randomly.

Pair Corralation between Polar Capital and Tata Steel

Assuming the 90 days trading horizon Polar Capital Technology is expected to generate 0.9 times more return on investment than Tata Steel. However, Polar Capital Technology is 1.11 times less risky than Tata Steel. It trades about 0.0 of its potential returns per unit of risk. Tata Steel Limited is currently generating about -0.06 per unit of risk. If you would invest  33,950  in Polar Capital Technology on December 2, 2024 and sell it today you would lose (450.00) from holding Polar Capital Technology or give up 1.33% of portfolio value over 90 days.

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

Polar Capital Technology  vs.  Tata Steel Limited

Polar Capital Technology

Risk-Adjusted Performance

Very Weak

Over the last 90 days Polar Capital Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Polar Capital is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Tata Steel Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tata Steel Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's essential indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Polar Capital and Tata Steel

The main advantage of trading using opposite Polar Capital and Tata Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Polar Capital 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 Polar Capital Technology 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.

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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.