Correlation Between Steel Authority and Tamilnad Mercantile

Can any of the company-specific risk be diversified away by investing in both Steel Authority and Tamilnad Mercantile 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 Tamilnad Mercantile 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 Tamilnad Mercantile Bank, you can compare the effects of market volatilities on Steel Authority and Tamilnad Mercantile 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 Tamilnad Mercantile. Check out your portfolio center. Please also check ongoing floating volatility patterns of Steel Authority and Tamilnad Mercantile.

Diversification Opportunities for Steel Authority and Tamilnad Mercantile

0.26

Correlation Coefficient

Steel Authority  Tamilnad Mercantile

Modest diversification

The 3 months correlation between Steel and Tamilnad is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Steel Authority of and Tamilnad Mercantile Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tamilnad Mercantile Bank 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 Tamilnad Mercantile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tamilnad Mercantile Bank has no effect on the direction of Steel Authority i.e., Steel Authority and Tamilnad Mercantile go up and down completely randomly.

Pair Corralation between Steel Authority and Tamilnad Mercantile

Assuming the 90 days trading horizon Steel Authority of is expected to under-perform the Tamilnad Mercantile. In addition to that, Steel Authority is 2.27 times more volatile than Tamilnad Mercantile Bank. It trades about -0.34 of its total potential returns per unit of risk. Tamilnad Mercantile Bank is currently generating about -0.67 per unit of volatility. If you would invest  50,135  in Tamilnad Mercantile Bank on October 11, 2024 and sell it today you would lose (5,525) from holding Tamilnad Mercantile Bank or give up 11.02% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Steel Authority of  vs.  Tamilnad Mercantile Bank

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 unfluctuating performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Tamilnad Mercantile Bank

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Steel Authority and Tamilnad Mercantile

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

The idea behind Steel Authority of and Tamilnad Mercantile Bank 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.