Correlation Between Tata Steel and Mercantile Investment

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

Diversification Opportunities for Tata Steel and Mercantile Investment

0.36

Correlation Coefficient

Tata Steel  Mercantile Investment

Weak diversification

The 3 months correlation between Tata and Mercantile is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Tata Steel Limited and The Mercantile Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Mercantile Investment 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 Mercantile Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Mercantile Investment has no effect on the direction of Tata Steel i.e., Tata Steel and Mercantile Investment go up and down completely randomly.

Pair Corralation between Tata Steel and Mercantile Investment

Assuming the 90 days trading horizon Tata Steel Limited is expected to under-perform the Mercantile Investment. In addition to that, Tata Steel is 2.01 times more volatile than The Mercantile Investment. It trades about -0.02 of its total potential returns per unit of risk. The Mercantile Investment is currently generating about -0.01 per unit of volatility. If you would invest  24,498  in The Mercantile Investment on September 14, 2024 and sell it today you would lose (248.00) from holding The Mercantile Investment or give up 1.01% 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.  The Mercantile Investment

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.

The Mercantile Investment

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Tata Steel and Mercantile Investment

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

The idea behind Tata Steel Limited and The Mercantile Investment 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.