Correlation Between Steel Authority and Tech Mahindra

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

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

Diversification Opportunities for Steel Authority and Tech Mahindra

-0.55

Correlation Coefficient

Steel Authority  Tech Mahindra

Excellent diversification

The 3 months correlation between Steel and Tech is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Steel Authority of and Tech Mahindra Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tech Mahindra Limited and Steel Authority 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 Steel Authority of are associated (or correlated) with Tech Mahindra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tech Mahindra Limited has no effect on the direction of Steel Authority i.e., Steel Authority and Tech Mahindra go up and down completely randomly.

Pair Corralation between Steel Authority and Tech Mahindra

Assuming the 90 days trading horizon Steel Authority of is expected to under-perform the Tech Mahindra. In addition to that, Steel Authority is 1.31 times more volatile than Tech Mahindra Limited. It trades about -0.01 of its total potential returns per unit of risk. Tech Mahindra Limited is currently generating about 0.09 per unit of volatility. If you would invest  164,131  in Tech Mahindra Limited on September 13, 2024 and sell it today you would earn a total of  14,829  from holding Tech Mahindra Limited or generate 9.03% return on investment over 90 days.

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

Steel Authority of  vs.  Tech Mahindra Limited

Steel Authority

Risk-Adjusted Performance

0 of 100

Very Weak

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

Tech Mahindra Limited

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tech Mahindra Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain fundamental indicators, Tech Mahindra may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Steel Authority and Tech Mahindra

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

The idea behind Steel Authority of and Tech Mahindra 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.