Correlation Between Tata Steel and Impax Environmental

Can any of the company-specific risk be diversified away by investing in both Tata Steel and Impax Environmental 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 Impax Environmental 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 Impax Environmental Markets, you can compare the effects of market volatilities on Tata Steel and Impax Environmental 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 Impax Environmental. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tata Steel and Impax Environmental.

Diversification Opportunities for Tata Steel and Impax Environmental

0.39

Correlation Coefficient

Tata Steel  Impax Environmental

Weak diversification

The 3 months correlation between Tata and Impax is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Tata Steel Limited and Impax Environmental Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Impax Environmental 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 Impax Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Impax Environmental has no effect on the direction of Tata Steel i.e., Tata Steel and Impax Environmental go up and down completely randomly.

Pair Corralation between Tata Steel and Impax Environmental

Assuming the 90 days trading horizon Tata Steel Limited is expected to under-perform the Impax Environmental. In addition to that, Tata Steel is 2.58 times more volatile than Impax Environmental Markets. It trades about -0.02 of its total potential returns per unit of risk. Impax Environmental Markets is currently generating about -0.02 per unit of volatility. If you would invest  38,000  in Impax Environmental Markets on September 4, 2024 and sell it today you would lose (400.00) from holding Impax Environmental Markets or give up 1.05% 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.  Impax Environmental Markets

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.

Impax Environmental

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Impax Environmental Markets has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Impax Environmental is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Tata Steel and Impax Environmental

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

The idea behind Tata Steel Limited and Impax Environmental Markets 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.