Correlation Between Tata Steel and Fevertree Drinks

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

Diversification Opportunities for Tata Steel and Fevertree Drinks

0.91

Correlation Coefficient

Tata Steel  Fevertree Drinks

Almost no diversification

The 3 months correlation between Tata and Fevertree is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Tata Steel Limited and Fevertree Drinks Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fevertree Drinks 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 Fevertree Drinks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fevertree Drinks Plc has no effect on the direction of Tata Steel i.e., Tata Steel and Fevertree Drinks go up and down completely randomly.

Pair Corralation between Tata Steel and Fevertree Drinks

Assuming the 90 days trading horizon Tata Steel Limited is expected to generate 1.28 times more return on investment than Fevertree Drinks. However, Tata Steel is 1.28 times more volatile than Fevertree Drinks Plc. It trades about -0.06 of its potential returns per unit of risk. Fevertree Drinks Plc is currently generating about -0.14 per unit of risk. If you would invest  1,820  in Tata Steel Limited on September 22, 2024 and sell it today you would lose (150.00) from holding Tata Steel Limited or give up 8.24% 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.  Fevertree Drinks 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 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.

Fevertree Drinks Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fevertree Drinks Plc 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 Fevertree Drinks

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

The idea behind Tata Steel Limited and Fevertree Drinks 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.