Correlation Between Tata Steel and Thai Steel

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

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

Diversification Opportunities for Tata Steel and Thai Steel

-0.07

Correlation Coefficient

Tata Steel  Thai Steel

Good diversification

The 3 months correlation between Tata and Thai is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Tata Steel Public and Thai Steel Cable in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thai Steel Cable 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 Public are associated (or correlated) with Thai Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thai Steel Cable has no effect on the direction of Tata Steel i.e., Tata Steel and Thai Steel go up and down completely randomly.

Pair Corralation between Tata Steel and Thai Steel

Assuming the 90 days trading horizon Tata Steel is expected to generate 1.05 times less return on investment than Thai Steel. But when comparing it to its historical volatility, Tata Steel Public is 1.0 times less risky than Thai Steel. It trades about 0.04 of its potential returns per unit of risk. Thai Steel Cable is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,257  in Thai Steel Cable on September 13, 2024 and sell it today you would earn a total of  223.00  from holding Thai Steel Cable or generate 17.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.79%
Values	Daily Returns

Tata Steel Public  vs.  Thai Steel Cable

Tata Steel Public

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tata Steel Public are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward-looking signals, Tata Steel disclosed solid returns over the last few months and may actually be approaching a breakup point.

Thai Steel Cable

Risk-Adjusted Performance

7 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Thai Steel Cable are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental indicators, Thai Steel is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Tata Steel and Thai Steel

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

The idea behind Tata Steel Public and Thai Steel Cable 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.