Correlation Between Tata Investment and Indian Metals

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

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

Diversification Opportunities for Tata Investment and Indian Metals

0.08

Correlation Coefficient

Tata Investment  Indian Metals

Significant diversification

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

Pair Corralation between Tata Investment and Indian Metals

Assuming the 90 days trading horizon Tata Investment is expected to generate 15.33 times less return on investment than Indian Metals. But when comparing it to its historical volatility, Tata Investment is 2.66 times less risky than Indian Metals. It trades about 0.06 of its potential returns per unit of risk. Indian Metals Ferro is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  77,285  in Indian Metals Ferro on September 19, 2024 and sell it today you would earn a total of  15,250  from holding Indian Metals Ferro or generate 19.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Tata Investment  vs.  Indian Metals Ferro

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.

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.

Pair Trading with Tata Investment and Indian Metals

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

The idea behind Tata Investment and Indian Metals Ferro 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.