Correlation Between Tata Steel and JSW Steel

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

Diversification Opportunities for Tata Steel and JSW Steel

0.29

Correlation Coefficient

Tata Steel  JSW Steel

Modest diversification

The 3 months correlation between Tata and JSW is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Tata Steel Limited and JSW Steel Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JSW Steel Limited 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 JSW Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JSW Steel Limited has no effect on the direction of Tata Steel i.e., Tata Steel and JSW Steel go up and down completely randomly.

Pair Corralation between Tata Steel and JSW Steel

Assuming the 90 days trading horizon Tata Steel Limited is expected to generate 0.9 times more return on investment than JSW Steel. However, Tata Steel Limited is 1.11 times less risky than JSW Steel. It trades about 0.19 of its potential returns per unit of risk. JSW Steel Limited is currently generating about 0.01 per unit of risk. If you would invest  13,632  in Tata Steel Limited on April 20, 2025 and sell it today you would earn a total of  2,605  from holding Tata Steel Limited or generate 19.11% return on investment over 90 days.

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

Tata Steel Limited  vs.  JSW Steel Limited

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 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, Tata Steel exhibited solid returns over the last few months and may actually be approaching a breakup point.

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 newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Tata Steel and JSW Steel

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

The idea behind Tata Steel Limited and JSW 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .