Correlation Between JSW Steel and Tata Steel

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

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

Diversification Opportunities for JSW Steel and Tata Steel

0.33

Correlation Coefficient

JSW Steel  Tata Steel

Weak diversification

The 3 months correlation between JSW and Tata is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding JSW Steel Limited and Tata Steel Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tata Steel Limited and JSW 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 JSW Steel Limited are associated (or correlated) with Tata Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tata Steel Limited has no effect on the direction of JSW Steel i.e., JSW Steel and Tata Steel go up and down completely randomly.

Pair Corralation between JSW Steel and Tata Steel

Assuming the 90 days trading horizon JSW Steel Limited is expected to under-perform the Tata Steel. In addition to that, JSW Steel is 1.13 times more volatile than Tata Steel Limited. It trades about 0.0 of its total potential returns per unit of risk. Tata Steel Limited is currently generating about 0.19 per unit of volatility. If you would invest  13,822  in Tata Steel Limited on April 24, 2025 and sell it today you would earn a total of  2,482  from holding Tata Steel Limited or generate 17.96% return on investment over 90 days.

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

JSW Steel Limited  vs.  Tata Steel Limited

JSW Steel Limited

Risk-Adjusted Performance

Very Weak

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

Tata Steel Limited

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tata Steel Limited are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Tata Steel exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with JSW Steel and Tata Steel

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

The idea behind JSW Steel Limited and Tata Steel Limited 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.