Correlation Between General Insurance and JM Financial

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

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

Diversification Opportunities for General Insurance and JM Financial

-0.11

Correlation Coefficient

General Insurance  JM Financial

Good diversification

The 3 months correlation between General and JMFINANCIL is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding General Insurance and JM Financial Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JM Financial Limited and General Insurance 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 General Insurance are associated (or correlated) with JM Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JM Financial Limited has no effect on the direction of General Insurance i.e., General Insurance and JM Financial go up and down completely randomly.

Pair Corralation between General Insurance and JM Financial

Assuming the 90 days trading horizon General Insurance is expected to generate 2.2 times more return on investment than JM Financial. However, General Insurance is 2.2 times more volatile than JM Financial Limited. It trades about 0.25 of its potential returns per unit of risk. JM Financial Limited is currently generating about -0.2 per unit of risk. If you would invest  39,825  in General Insurance on September 27, 2024 and sell it today you would earn a total of  7,065  from holding General Insurance or generate 17.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

General Insurance  vs.  JM Financial Limited

General Insurance

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Insurance are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, General Insurance displayed solid returns over the last few months and may actually be approaching a breakup point.

JM Financial Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JM Financial Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with General Insurance and JM Financial

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

The idea behind General Insurance and JM Financial 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 Stocks Directory module to find actively traded stocks across global markets.