Correlation Between Tata Steel and Neometals

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

Diversification Opportunities for Tata Steel and Neometals

0.63
  Correlation Coefficient

Poor diversification

The 3 months correlation between Tata and Neometals is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Tata Steel Limited and Neometals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Neometals 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 Neometals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Neometals has no effect on the direction of Tata Steel i.e., Tata Steel and Neometals go up and down completely randomly.

Pair Corralation between Tata Steel and Neometals

Assuming the 90 days trading horizon Tata Steel Limited is expected to generate 0.32 times more return on investment than Neometals. However, Tata Steel Limited is 3.17 times less risky than Neometals. It trades about -0.07 of its potential returns per unit of risk. Neometals is currently generating about -0.18 per unit of risk. If you would invest  1,775  in Tata Steel Limited on September 22, 2024 and sell it today you would lose (105.00) from holding Tata Steel Limited or give up 5.92% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Tata Steel Limited  vs.  Neometals

 Performance 
       Timeline  
Tata Steel Limited 

Risk-Adjusted Performance

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Strong
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.
Neometals 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Neometals 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 technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Tata Steel and Neometals Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Tata Steel and Neometals

The main advantage of trading using opposite Tata Steel and Neometals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tata Steel position performs unexpectedly, Neometals 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 Neometals will offset losses from the drop in Neometals' long position.
The idea behind Tata Steel Limited and Neometals 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.
Check out your portfolio center.
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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.

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