Correlation Between Tata Investment and NMDC Steel

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

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

Diversification Opportunities for Tata Investment and NMDC Steel

0.42

Correlation Coefficient

Tata Investment  NMDC Steel

Very weak diversification

The 3 months correlation between Tata and NMDC is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Tata Investment and NMDC Steel Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMDC Steel Limited and Tata Investment 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 Investment are associated (or correlated) with NMDC Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NMDC Steel Limited has no effect on the direction of Tata Investment i.e., Tata Investment and NMDC Steel go up and down completely randomly.

Pair Corralation between Tata Investment and NMDC Steel

Assuming the 90 days trading horizon Tata Investment is expected to generate 0.83 times more return on investment than NMDC Steel. However, Tata Investment is 1.2 times less risky than NMDC Steel. It trades about 0.01 of its potential returns per unit of risk. NMDC Steel Limited is currently generating about -0.07 per unit of risk. If you would invest  696,640  in Tata Investment on September 12, 2024 and sell it today you would earn a total of  1,915  from holding Tata Investment or generate 0.27% return on investment over 90 days.

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

Tata Investment  vs.  NMDC Steel Limited

Tata Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tata Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable technical and fundamental indicators, Tata Investment is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

NMDC Steel Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NMDC Steel Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's forward indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Tata Investment and NMDC Steel

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

The idea behind Tata Investment and NMDC 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.

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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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.