Correlation Between Tata Steel and Alliance Data

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

Diversification Opportunities for Tata Steel and Alliance Data

-0.74

Correlation Coefficient

Tata Steel  Alliance Data

Pay attention - limited upside

The 3 months correlation between Tata and Alliance is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Tata Steel Limited and Alliance Data Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alliance Data Systems 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 Alliance Data. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alliance Data Systems has no effect on the direction of Tata Steel i.e., Tata Steel and Alliance Data go up and down completely randomly.

Pair Corralation between Tata Steel and Alliance Data

Assuming the 90 days trading horizon Tata Steel Limited is expected to under-perform the Alliance Data. But the stock apears to be less risky and, when comparing its historical volatility, Tata Steel Limited is 1.77 times less risky than Alliance Data. The stock trades about -0.03 of its potential returns per unit of risk. The Alliance Data Systems is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  5,627  in Alliance Data Systems on September 5, 2024 and sell it today you would earn a total of  549.00  from holding Alliance Data Systems or generate 9.76% return on investment over 90 days.

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

Tata Steel Limited  vs.  Alliance Data Systems

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 quite persistent essential indicators, Tata Steel is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Alliance Data Systems

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Data Systems are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Alliance Data unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tata Steel and Alliance Data

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

The idea behind Tata Steel Limited and Alliance Data Systems 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.