Correlation Between Tata Steel and Alfa Financial

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

Diversification Opportunities for Tata Steel and Alfa Financial

0.32

Correlation Coefficient

Tata Steel  Alfa Financial

Weak diversification

The 3 months correlation between Tata and Alfa is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Tata Steel Limited and Alfa Financial Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alfa Financial Software 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 Alfa Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alfa Financial Software has no effect on the direction of Tata Steel i.e., Tata Steel and Alfa Financial go up and down completely randomly.

Pair Corralation between Tata Steel and Alfa Financial

Assuming the 90 days trading horizon Tata Steel Limited is expected to generate 1.35 times more return on investment than Alfa Financial. However, Tata Steel is 1.35 times more volatile than Alfa Financial Software. It trades about 0.12 of its potential returns per unit of risk. Alfa Financial Software is currently generating about 0.05 per unit of risk. If you would invest  1,580  in Tata Steel Limited on December 29, 2024 and sell it today you would earn a total of  225.00  from holding Tata Steel Limited or generate 14.24% return on investment over 90 days.

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

Tata Steel Limited  vs.  Alfa Financial Software

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 9 (%) 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.

Alfa Financial Software

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Alfa Financial Software are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Alfa Financial 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 Alfa Financial

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

The idea behind Tata Steel Limited and Alfa Financial Software 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.