Correlation Between Tata Steel and Thai Capital

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

Diversification Opportunities for Tata Steel and Thai Capital

0.4

Correlation Coefficient

Tata Steel  Thai Capital

Very weak diversification

The 3 months correlation between Tata and Thai is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Tata Steel Public and Thai Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thai Capital 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 Thai Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thai Capital has no effect on the direction of Tata Steel i.e., Tata Steel and Thai Capital go up and down completely randomly.

Pair Corralation between Tata Steel and Thai Capital

Assuming the 90 days trading horizon Tata Steel Public is expected to generate 0.68 times more return on investment than Thai Capital. However, Tata Steel Public is 1.47 times less risky than Thai Capital. It trades about 0.09 of its potential returns per unit of risk. Thai Capital is currently generating about -0.01 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  9.00  from holding Tata Steel Public or generate 14.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

Tata Steel Public  vs.  Thai Capital

Tata Steel Public

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tata Steel Public are ranked lower than 6 (%) 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.

Thai Capital

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Tata Steel and Thai Capital

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

The idea behind Tata Steel Public and Thai Capital 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.