Correlation Between Tata Steel and Rockfire Resources

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

Diversification Opportunities for Tata Steel and Rockfire Resources

-0.49

Correlation Coefficient

Tata Steel  Rockfire Resources

Very good diversification

The 3 months correlation between Tata and Rockfire is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Tata Steel Limited and Rockfire Resources plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rockfire Resources 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 Rockfire Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rockfire Resources plc has no effect on the direction of Tata Steel i.e., Tata Steel and Rockfire Resources go up and down completely randomly.

Pair Corralation between Tata Steel and Rockfire Resources

Assuming the 90 days trading horizon Tata Steel Limited is expected to under-perform the Rockfire Resources. But the stock apears to be less risky and, when comparing its historical volatility, Tata Steel Limited is 11.24 times less risky than Rockfire Resources. The stock trades about -0.37 of its potential returns per unit of risk. The Rockfire Resources plc is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  18.00  in Rockfire Resources plc on October 6, 2024 and sell it today you would lose (2.00) from holding Rockfire Resources plc or give up 11.11% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.0%
Values	Daily Returns

Tata Steel Limited  vs.  Rockfire Resources 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 conflicting 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.

Rockfire Resources plc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rockfire Resources plc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Rockfire Resources unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tata Steel and Rockfire Resources

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

The idea behind Tata Steel Limited and Rockfire Resources 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.