Correlation Between Indian Metals and Tata Investment

Can any of the company-specific risk be diversified away by investing in both Indian Metals and Tata Investment 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 Indian Metals and Tata Investment into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Indian Metals Ferro and Tata Investment, you can compare the effects of market volatilities on Indian Metals and Tata Investment 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 Indian Metals with a short position of Tata Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Indian Metals and Tata Investment.

Diversification Opportunities for Indian Metals and Tata Investment

0.08

Correlation Coefficient

Indian Metals  Tata Investment

Significant diversification

The 3 months correlation between Indian and Tata is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Indian Metals Ferro and Tata Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tata Investment and Indian Metals 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 Indian Metals Ferro are associated (or correlated) with Tata Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tata Investment has no effect on the direction of Indian Metals i.e., Indian Metals and Tata Investment go up and down completely randomly.

Pair Corralation between Indian Metals and Tata Investment

Assuming the 90 days trading horizon Indian Metals Ferro is expected to generate 1.59 times more return on investment than Tata Investment. However, Indian Metals is 1.59 times more volatile than Tata Investment. It trades about 0.23 of its potential returns per unit of risk. Tata Investment is currently generating about 0.02 per unit of risk. If you would invest  65,284  in Indian Metals Ferro on September 19, 2024 and sell it today you would earn a total of  27,251  from holding Indian Metals Ferro or generate 41.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Indian Metals Ferro  vs.  Tata Investment

Indian Metals Ferro

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Indian Metals Ferro are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Indian Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Tata Investment

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tata Investment are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable technical and fundamental indicators, Tata Investment is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Indian Metals and Tata Investment

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

The idea behind Indian Metals Ferro and Tata Investment 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.