Correlation Between Tata Steel and SMA Solar

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

Diversification Opportunities for Tata Steel and SMA Solar

0.54

Correlation Coefficient

Tata Steel  SMA Solar

Very weak diversification

The 3 months correlation between Tata and SMA is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Tata Steel Limited and SMA Solar Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SMA Solar Technology 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 SMA Solar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SMA Solar Technology has no effect on the direction of Tata Steel i.e., Tata Steel and SMA Solar go up and down completely randomly.

Pair Corralation between Tata Steel and SMA Solar

Assuming the 90 days trading horizon Tata Steel Limited is expected to generate 0.52 times more return on investment than SMA Solar. However, Tata Steel Limited is 1.94 times less risky than SMA Solar. It trades about -0.11 of its potential returns per unit of risk. SMA Solar Technology is currently generating about -0.15 per unit of risk. If you would invest  2,137  in Tata Steel Limited on October 13, 2024 and sell it today you would lose (677.00) from holding Tata Steel Limited or give up 31.68% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.32%
Values	Daily Returns

Tata Steel Limited  vs.  SMA Solar Technology

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

SMA Solar Technology

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Tata Steel and SMA Solar

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

The idea behind Tata Steel Limited and SMA Solar Technology 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.