Correlation Between JSW Steel and Indian Railway

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

Diversification Opportunities for JSW Steel and Indian Railway

-0.35
  Correlation Coefficient

Very good diversification

The 3 months correlation between JSW and Indian is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding JSW Steel Limited and Indian Railway Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indian Railway Finance 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 Indian Railway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indian Railway Finance has no effect on the direction of JSW Steel i.e., JSW Steel and Indian Railway go up and down completely randomly.

Pair Corralation between JSW Steel and Indian Railway

Assuming the 90 days trading horizon JSW Steel Limited is expected to under-perform the Indian Railway. But the stock apears to be less risky and, when comparing its historical volatility, JSW Steel Limited is 1.75 times less risky than Indian Railway. The stock trades about -0.11 of its potential returns per unit of risk. The Indian Railway Finance is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  15,098  in Indian Railway Finance on September 3, 2024 and sell it today you would lose (164.00) from holding Indian Railway Finance or give up 1.09% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy97.62%
ValuesDaily Returns

JSW Steel Limited  vs.  Indian Railway Finance

 Performance 
       Timeline  
JSW Steel Limited 

Risk-Adjusted Performance

3 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in JSW Steel Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, JSW Steel is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.
Indian Railway Finance 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Indian Railway Finance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

JSW Steel and Indian Railway Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with JSW Steel and Indian Railway

The main advantage of trading using opposite JSW Steel and Indian Railway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if JSW Steel position performs unexpectedly, Indian Railway 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 Indian Railway will offset losses from the drop in Indian Railway's long position.
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The idea behind JSW Steel Limited and Indian Railway Finance 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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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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.

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