Correlation Between Tata Steel and Fresenius Medical

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

Diversification Opportunities for Tata Steel and Fresenius Medical

-0.58

Correlation Coefficient

Tata Steel  Fresenius Medical

Excellent diversification

The 3 months correlation between Tata and Fresenius is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Tata Steel Limited and Fresenius Medical Care in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fresenius Medical Care 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 Fresenius Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fresenius Medical Care has no effect on the direction of Tata Steel i.e., Tata Steel and Fresenius Medical go up and down completely randomly.

Pair Corralation between Tata Steel and Fresenius Medical

Assuming the 90 days trading horizon Tata Steel is expected to generate 5.1 times less return on investment than Fresenius Medical. But when comparing it to its historical volatility, Tata Steel Limited is 1.3 times less risky than Fresenius Medical. It trades about 0.03 of its potential returns per unit of risk. Fresenius Medical Care is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  4,238  in Fresenius Medical Care on September 23, 2024 and sell it today you would earn a total of  150.00  from holding Fresenius Medical Care or generate 3.54% return on investment over 90 days.

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

Tata Steel Limited  vs.  Fresenius Medical Care

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. Despite latest conflicting performance, the Stock's essential indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Fresenius Medical Care

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fresenius Medical Care are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Fresenius Medical unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tata Steel and Fresenius Medical

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

The idea behind Tata Steel Limited and Fresenius Medical Care 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.

Check out your portfolio center.

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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.