Correlation Between Tata Steel and Antofagasta PLC

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

Diversification Opportunities for Tata Steel and Antofagasta PLC

0.94

Correlation Coefficient

Tata Steel  Antofagasta PLC

Almost no diversification

The 3 months correlation between Tata and Antofagasta is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Tata Steel Limited and Antofagasta PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Antofagasta PLC 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 Antofagasta PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Antofagasta PLC has no effect on the direction of Tata Steel i.e., Tata Steel and Antofagasta PLC go up and down completely randomly.

Pair Corralation between Tata Steel and Antofagasta PLC

Assuming the 90 days trading horizon Tata Steel Limited is expected to under-perform the Antofagasta PLC. But the stock apears to be less risky and, when comparing its historical volatility, Tata Steel Limited is 1.02 times less risky than Antofagasta PLC. The stock trades about -0.15 of its potential returns per unit of risk. The Antofagasta PLC is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  189,650  in Antofagasta PLC on October 9, 2024 and sell it today you would lose (25,400) from holding Antofagasta PLC or give up 13.39% of portfolio value over 90 days.

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

Tata Steel Limited  vs.  Antofagasta PLC

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.

Antofagasta PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Antofagasta PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 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 Antofagasta PLC

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

The idea behind Tata Steel Limited and Antofagasta PLC 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.