Correlation Between MSP Steel and Tata Investment

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

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

Diversification Opportunities for MSP Steel and Tata Investment

0.16

Correlation Coefficient

MSP Steel  Tata Investment

Average diversification

The 3 months correlation between MSP and Tata is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding MSP Steel Power and Tata Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tata Investment and MSP 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 MSP Steel Power 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 MSP Steel i.e., MSP Steel and Tata Investment go up and down completely randomly.

Pair Corralation between MSP Steel and Tata Investment

Assuming the 90 days trading horizon MSP Steel Power is expected to generate 2.06 times more return on investment than Tata Investment. However, MSP Steel is 2.06 times more volatile than Tata Investment. It trades about 0.01 of its potential returns per unit of risk. Tata Investment is currently generating about -0.02 per unit of risk. If you would invest  4,689  in MSP Steel Power on September 10, 2024 and sell it today you would lose (78.00) from holding MSP Steel Power or give up 1.66% of portfolio value over 90 days.

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

MSP Steel Power  vs.  Tata Investment

MSP Steel Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MSP Steel Power has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, MSP Steel is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Tata Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tata Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable technical and fundamental indicators, Tata Investment is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with MSP Steel and Tata Investment

The main advantage of trading using opposite MSP Steel and Tata Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MSP Steel 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 MSP Steel Power 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.