Correlation Between Tata Steel and McEwen Mining

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

Diversification Opportunities for Tata Steel and McEwen Mining

0.55

Correlation Coefficient

Tata Steel  McEwen Mining

Very weak diversification

The 3 months correlation between Tata and McEwen is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Tata Steel Limited and McEwen Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McEwen Mining 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 McEwen Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of McEwen Mining has no effect on the direction of Tata Steel i.e., Tata Steel and McEwen Mining go up and down completely randomly.

Pair Corralation between Tata Steel and McEwen Mining

Assuming the 90 days trading horizon Tata Steel Limited is expected to generate 0.63 times more return on investment than McEwen Mining. However, Tata Steel Limited is 1.59 times less risky than McEwen Mining. It trades about -0.02 of its potential returns per unit of risk. McEwen Mining is currently generating about -0.02 per unit of risk. If you would invest  1,815  in Tata Steel Limited on September 14, 2024 and sell it today you would lose (65.00) from holding Tata Steel Limited or give up 3.58% of portfolio value over 90 days.

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

Tata Steel Limited  vs.  McEwen Mining

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 newest stock price mess, may contribute to short-term losses for the institutional investors.

McEwen Mining

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days McEwen Mining has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, McEwen Mining is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Tata Steel and McEwen Mining

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

The idea behind Tata Steel Limited and McEwen Mining 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.