Correlation Between Tata Steel and Veolia Environnement

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

Diversification Opportunities for Tata Steel and Veolia Environnement

0.8

Correlation Coefficient

Tata Steel  Veolia Environnement

Very poor diversification

The 3 months correlation between Tata and Veolia is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Tata Steel Limited and Veolia Environnement VE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Veolia Environnement 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 Veolia Environnement. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Veolia Environnement has no effect on the direction of Tata Steel i.e., Tata Steel and Veolia Environnement go up and down completely randomly.

Pair Corralation between Tata Steel and Veolia Environnement

Assuming the 90 days trading horizon Tata Steel is expected to generate 1.19 times less return on investment than Veolia Environnement. In addition to that, Tata Steel is 1.77 times more volatile than Veolia Environnement VE. It trades about 0.11 of its total potential returns per unit of risk. Veolia Environnement VE is currently generating about 0.23 per unit of volatility. If you would invest  2,677  in Veolia Environnement VE on December 23, 2024 and sell it today you would earn a total of  460.00  from holding Veolia Environnement VE or generate 17.18% return on investment over 90 days.

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

Tata Steel Limited  vs.  Veolia Environnement VE

Tata Steel Limited

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tata Steel Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Tata Steel disclosed solid returns over the last few months and may actually be approaching a breakup point.

Veolia Environnement

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Veolia Environnement VE are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Veolia Environnement unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tata Steel and Veolia Environnement

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

The idea behind Tata Steel Limited and Veolia Environnement VE 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.