Correlation Between State Bank and Tata Steel

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

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

Diversification Opportunities for State Bank and Tata Steel

-0.21

Correlation Coefficient

State Bank  Tata Steel

Very good diversification

The 3 months correlation between State and Tata is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding State Bank of 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 State Bank 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 State Bank of 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 State Bank i.e., State Bank and Tata Steel go up and down completely randomly.

Pair Corralation between State Bank and Tata Steel

Assuming the 90 days trading horizon State Bank of is expected to generate 0.65 times more return on investment than Tata Steel. However, State Bank of is 1.54 times less risky than Tata Steel. It trades about 0.04 of its potential returns per unit of risk. Tata Steel Limited is currently generating about 0.02 per unit of risk. If you would invest  7,066  in State Bank of on October 3, 2024 and sell it today you would earn a total of  2,194  from holding State Bank of or generate 31.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

State Bank of  vs.  Tata Steel Limited

State Bank

Risk-Adjusted Performance

0 of 100

Very Weak

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

Tata Steel Limited

Risk-Adjusted Performance

0 of 100

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 uncertain performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with State Bank and Tata Steel

The main advantage of trading using opposite State Bank and Tata Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if State Bank 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 State Bank of 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.