Correlation Between Tata Steel and Steel Authority

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

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

Diversification Opportunities for Tata Steel and Steel Authority

0.87

Correlation Coefficient

Tata Steel  Steel Authority

Very poor diversification

The 3 months correlation between Tata and Steel is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Tata Steel Limited and Steel Authority of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steel Authority and Tata Steel 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 Steel Limited are associated (or correlated) with Steel Authority. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Steel Authority has no effect on the direction of Tata Steel i.e., Tata Steel and Steel Authority go up and down completely randomly.

Pair Corralation between Tata Steel and Steel Authority

Assuming the 90 days trading horizon Tata Steel is expected to generate 2.48 times less return on investment than Steel Authority. But when comparing it to its historical volatility, Tata Steel Limited is 1.04 times less risky than Steel Authority. It trades about 0.15 of its potential returns per unit of risk. Steel Authority of is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest  11,589  in Steel Authority of on September 12, 2024 and sell it today you would earn a total of  1,106  from holding Steel Authority of or generate 9.54% return on investment over 90 days.

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

Tata Steel Limited  vs.  Steel Authority of

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. In spite of rather sound technical and fundamental indicators, Tata Steel is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

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

Pair Trading with Tata Steel and Steel Authority

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

The idea behind Tata Steel Limited and Steel Authority 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.