Correlation Between Tata Steel and Gamma Communications

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

Diversification Opportunities for Tata Steel and Gamma Communications

0.77

Correlation Coefficient

Tata Steel  Gamma Communications

Poor diversification

The 3 months correlation between Tata and Gamma is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Tata Steel Limited and Gamma Communications PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gamma Communications 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 Gamma Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gamma Communications PLC has no effect on the direction of Tata Steel i.e., Tata Steel and Gamma Communications go up and down completely randomly.

Pair Corralation between Tata Steel and Gamma Communications

Assuming the 90 days trading horizon Tata Steel Limited is expected to under-perform the Gamma Communications. In addition to that, Tata Steel is 1.66 times more volatile than Gamma Communications PLC. It trades about -0.14 of its total potential returns per unit of risk. Gamma Communications PLC is currently generating about -0.11 per unit of volatility. If you would invest  165,400  in Gamma Communications PLC on October 8, 2024 and sell it today you would lose (13,400) from holding Gamma Communications PLC or give up 8.1% of portfolio value over 90 days.

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

Tata Steel Limited  vs.  Gamma Communications 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.

Gamma Communications PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gamma Communications PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Tata Steel and Gamma Communications

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

The idea behind Tata Steel Limited and Gamma Communications 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.