Correlation Between Tata Steel and Associated British

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

Diversification Opportunities for Tata Steel and Associated British

0.68

Correlation Coefficient

Tata Steel  Associated British

Poor diversification

The 3 months correlation between Tata and Associated is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Tata Steel Limited and Associated British Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Associated British Foods 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 Associated British. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Associated British Foods has no effect on the direction of Tata Steel i.e., Tata Steel and Associated British go up and down completely randomly.

Pair Corralation between Tata Steel and Associated British

Assuming the 90 days trading horizon Tata Steel Limited is expected to generate 1.01 times more return on investment than Associated British. However, Tata Steel is 1.01 times more volatile than Associated British Foods. It trades about 0.09 of its potential returns per unit of risk. Associated British Foods is currently generating about -0.14 per unit of risk. If you would invest  1,635  in Tata Steel Limited on September 22, 2024 and sell it today you would earn a total of  35.00  from holding Tata Steel Limited or generate 2.14% return on investment over 90 days.

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

Tata Steel Limited  vs.  Associated British Foods

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 latest uncertain performance, the Stock's essential indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Associated British Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Associated British Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Tata Steel and Associated British

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

The idea behind Tata Steel Limited and Associated British Foods 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.