Correlation Between Tata Steel and Airports

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

By analyzing existing cross correlation between Tata Steel Public and Airports of Thailand, you can compare the effects of market volatilities on Tata Steel and Airports 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 Airports. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tata Steel and Airports.

Diversification Opportunities for Tata Steel and Airports

0.3

Correlation Coefficient

Tata Steel  Airports

Weak diversification

The 3 months correlation between Tata and Airports is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Tata Steel Public and Airports of Thailand in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Airports of Thailand 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 Public are associated (or correlated) with Airports. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Airports of Thailand has no effect on the direction of Tata Steel i.e., Tata Steel and Airports go up and down completely randomly.

Pair Corralation between Tata Steel and Airports

Assuming the 90 days trading horizon Tata Steel Public is expected to under-perform the Airports. In addition to that, Tata Steel is 1.59 times more volatile than Airports of Thailand. It trades about -0.37 of its total potential returns per unit of risk. Airports of Thailand is currently generating about -0.12 per unit of volatility. If you would invest  6,100  in Airports of Thailand on October 6, 2024 and sell it today you would lose (175.00) from holding Airports of Thailand or give up 2.87% of portfolio value over 90 days.

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

Tata Steel Public  vs.  Airports of Thailand

Tata Steel Public

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tata Steel Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's forward-looking signals 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.

Airports of Thailand

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Airports of Thailand has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Airports is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Tata Steel and Airports

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

The idea behind Tata Steel Public and Airports of Thailand 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.