Correlation Between NIFTY SUMER and Tata Steel

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

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

Diversification Opportunities for NIFTY SUMER and Tata Steel

0.77

Correlation Coefficient

NIFTY SUMER  Tata Steel

Poor diversification

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

Pair Corralation between NIFTY SUMER and Tata Steel

Assuming the 90 days trading horizon NIFTY SUMER DURABLES is expected to generate 0.68 times more return on investment than Tata Steel. However, NIFTY SUMER DURABLES is 1.47 times less risky than Tata Steel. It trades about -0.01 of its potential returns per unit of risk. Tata Steel Limited is currently generating about -0.01 per unit of risk. If you would invest  4,308,110  in NIFTY SUMER DURABLES on September 13, 2024 and sell it today you would lose (33,820) from holding NIFTY SUMER DURABLES or give up 0.79% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.83%
Values	Daily Returns

NIFTY SUMER DURABLES  vs.  Tata Steel Limited

Pair Trading with NIFTY SUMER and Tata Steel

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

The idea behind NIFTY SUMER DURABLES and Tata Steel Limited 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.