Correlation Between Tata Steel and Raytheon Technologies

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

By analyzing existing cross correlation between Tata Steel Limited and Raytheon Technologies Corp, you can compare the effects of market volatilities on Tata Steel and Raytheon Technologies 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 Raytheon Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tata Steel and Raytheon Technologies.

Diversification Opportunities for Tata Steel and Raytheon Technologies

0.3

Correlation Coefficient

Tata Steel  Raytheon Technologies

Weak diversification

The 3 months correlation between Tata and Raytheon is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Tata Steel Limited and Raytheon Technologies Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Raytheon Technologies 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 Limited are associated (or correlated) with Raytheon Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Raytheon Technologies has no effect on the direction of Tata Steel i.e., Tata Steel and Raytheon Technologies go up and down completely randomly.

Pair Corralation between Tata Steel and Raytheon Technologies

Assuming the 90 days trading horizon Tata Steel Limited is expected to under-perform the Raytheon Technologies. In addition to that, Tata Steel is 1.75 times more volatile than Raytheon Technologies Corp. It trades about -0.02 of its total potential returns per unit of risk. Raytheon Technologies Corp is currently generating about -0.01 per unit of volatility. If you would invest  11,878  in Raytheon Technologies Corp on September 14, 2024 and sell it today you would lose (173.00) from holding Raytheon Technologies Corp or give up 1.46% of portfolio value over 90 days.

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

Tata Steel Limited  vs.  Raytheon Technologies Corp

Tata Steel Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tata Steel Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Tata Steel is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Raytheon Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Tata Steel and Raytheon Technologies

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

The idea behind Tata Steel Limited and Raytheon Technologies Corp 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.

Check out your portfolio center.

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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.