Correlation Between Tata Steel and GoldMining

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

Diversification Opportunities for Tata Steel and GoldMining

-0.18

Correlation Coefficient

Tata Steel  GoldMining

Good diversification

The 3 months correlation between Tata and GoldMining is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Tata Steel Limited and GoldMining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GoldMining 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 GoldMining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GoldMining has no effect on the direction of Tata Steel i.e., Tata Steel and GoldMining go up and down completely randomly.

Pair Corralation between Tata Steel and GoldMining

Assuming the 90 days trading horizon Tata Steel Limited is expected to generate 0.72 times more return on investment than GoldMining. However, Tata Steel Limited is 1.39 times less risky than GoldMining. It trades about -0.02 of its potential returns per unit of risk. GoldMining is currently generating about -0.09 per unit of risk. If you would invest  1,815  in Tata Steel Limited on September 16, 2024 and sell it today you would lose (75.00) from holding Tata Steel Limited or give up 4.13% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	68.18%
Values	Daily Returns

Tata Steel Limited  vs.  GoldMining

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.

GoldMining

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GoldMining has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Tata Steel and GoldMining

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

The idea behind Tata Steel Limited and GoldMining 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.

Check out your portfolio center.

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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.