Correlation Between Tata Steel and United States

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

Diversification Opportunities for Tata Steel and United States

-0.05

Correlation Coefficient

Tata Steel  United States

Good diversification

The 3 months correlation between Tata and United is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Tata Steel Limited and United States Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United States Steel 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 United States. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United States Steel has no effect on the direction of Tata Steel i.e., Tata Steel and United States go up and down completely randomly.

Pair Corralation between Tata Steel and United States

Assuming the 90 days trading horizon Tata Steel Limited is expected to generate 0.3 times more return on investment than United States. However, Tata Steel Limited is 3.39 times less risky than United States. It trades about -0.35 of its potential returns per unit of risk. United States Steel is currently generating about -0.36 per unit of risk. If you would invest  1,710  in Tata Steel Limited on October 1, 2024 and sell it today you would lose (120.00) from holding Tata Steel Limited or give up 7.02% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

Tata Steel Limited  vs.  United States Steel

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 conflicting performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

United States Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United States Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Tata Steel and United States

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

The idea behind Tata Steel Limited and United States Steel 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.