Correlation Between Tata Steel and Rayong Wire

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

Diversification Opportunities for Tata Steel and Rayong Wire

0.65

Correlation Coefficient

Tata Steel  Rayong Wire

Poor diversification

The 3 months correlation between Tata and Rayong is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Tata Steel Public and Rayong Wire Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rayong Wire Industries 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 Rayong Wire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rayong Wire Industries has no effect on the direction of Tata Steel i.e., Tata Steel and Rayong Wire go up and down completely randomly.

Pair Corralation between Tata Steel and Rayong Wire

Assuming the 90 days trading horizon Tata Steel is expected to generate 1.02 times less return on investment than Rayong Wire. But when comparing it to its historical volatility, Tata Steel Public is 1.0 times less risky than Rayong Wire. It trades about 0.04 of its potential returns per unit of risk. Rayong Wire Industries is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  90.00  in Rayong Wire Industries on October 11, 2024 and sell it today you would lose (47.00) from holding Rayong Wire Industries or give up 52.22% of portfolio value over 90 days.

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

Tata Steel Public  vs.  Rayong Wire Industries

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.

Rayong Wire Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rayong Wire Industries 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 indicators 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.

Pair Trading with Tata Steel and Rayong Wire

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

The idea behind Tata Steel Public and Rayong Wire Industries 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..