Correlation Between Tata Chemicals and State Bank

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

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

Diversification Opportunities for Tata Chemicals and State Bank

0.43

Correlation Coefficient

Tata Chemicals  State Bank

Very weak diversification

The 3 months correlation between Tata and State is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Tata Chemicals Limited and State Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Bank and Tata Chemicals 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 Tata Chemicals Limited are associated (or correlated) with State Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Bank has no effect on the direction of Tata Chemicals i.e., Tata Chemicals and State Bank go up and down completely randomly.

Pair Corralation between Tata Chemicals and State Bank

Assuming the 90 days trading horizon Tata Chemicals Limited is expected to under-perform the State Bank. In addition to that, Tata Chemicals is 1.69 times more volatile than State Bank of. It trades about -0.36 of its total potential returns per unit of risk. State Bank of is currently generating about -0.57 per unit of volatility. If you would invest  86,160  in State Bank of on October 12, 2024 and sell it today you would lose (10,115) from holding State Bank of or give up 11.74% of portfolio value over 90 days.

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

Tata Chemicals Limited  vs.  State Bank of

Tata Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tata Chemicals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

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 recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Tata Chemicals and State Bank

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

The idea behind Tata Chemicals Limited and State Bank of 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.