Correlation Between Tata Steel and Gunkul Engineering

Can any of the company-specific risk be diversified away by investing in both Tata Steel and Gunkul Engineering 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 Gunkul Engineering 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 Gunkul Engineering Public, you can compare the effects of market volatilities on Tata Steel and Gunkul Engineering 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 Gunkul Engineering. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tata Steel and Gunkul Engineering.

Diversification Opportunities for Tata Steel and Gunkul Engineering

0.29

Correlation Coefficient

Tata Steel  Gunkul Engineering

Modest diversification

The 3 months correlation between Tata and Gunkul is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Tata Steel Public and Gunkul Engineering Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gunkul Engineering Public 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 Gunkul Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gunkul Engineering Public has no effect on the direction of Tata Steel i.e., Tata Steel and Gunkul Engineering go up and down completely randomly.

Pair Corralation between Tata Steel and Gunkul Engineering

Assuming the 90 days trading horizon Tata Steel Public is expected to generate 1.4 times more return on investment than Gunkul Engineering. However, Tata Steel is 1.4 times more volatile than Gunkul Engineering Public. It trades about 0.07 of its potential returns per unit of risk. Gunkul Engineering Public is currently generating about -0.12 per unit of risk. If you would invest  64.00  in Tata Steel Public on September 13, 2024 and sell it today you would earn a total of  7.00  from holding Tata Steel Public or generate 10.94% return on investment over 90 days.

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

Tata Steel Public  vs.  Gunkul Engineering Public

Tata Steel Public

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tata Steel Public are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Tata Steel disclosed solid returns over the last few months and may actually be approaching a breakup point.

Gunkul Engineering Public

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gunkul Engineering 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 basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Tata Steel and Gunkul Engineering

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

The idea behind Tata Steel Public and Gunkul Engineering Public 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.