Correlation Between Cholamandalam Financial and JSW Steel

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

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

Diversification Opportunities for Cholamandalam Financial and JSW Steel

0.6

Correlation Coefficient

Cholamandalam Financial  JSW Steel

Poor diversification

The 3 months correlation between Cholamandalam and JSW is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Cholamandalam Financial Holdin 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 Cholamandalam Financial 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 Cholamandalam Financial Holdings 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 Cholamandalam Financial i.e., Cholamandalam Financial and JSW Steel go up and down completely randomly.

Pair Corralation between Cholamandalam Financial and JSW Steel

Assuming the 90 days trading horizon Cholamandalam Financial Holdings is expected to generate 1.39 times more return on investment than JSW Steel. However, Cholamandalam Financial is 1.39 times more volatile than JSW Steel Limited. It trades about 0.06 of its potential returns per unit of risk. JSW Steel Limited is currently generating about 0.04 per unit of risk. If you would invest  112,429  in Cholamandalam Financial Holdings on October 5, 2024 and sell it today you would earn a total of  42,846  from holding Cholamandalam Financial Holdings or generate 38.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.34%
Values	Daily Returns

Cholamandalam Financial Holdin  vs.  JSW Steel Limited

Cholamandalam Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cholamandalam Financial Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

JSW Steel Limited

Risk-Adjusted Performance

0 of 100

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 latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Cholamandalam Financial and JSW Steel

The main advantage of trading using opposite Cholamandalam Financial and JSW Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cholamandalam Financial 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 Cholamandalam Financial Holdings 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.

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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.