Correlation Between JB Chemicals and Reliance Power

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

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

Diversification Opportunities for JB Chemicals and Reliance Power

0.62

Correlation Coefficient

JB Chemicals  Reliance Power

Poor diversification

The 3 months correlation between JBCHEPHARM and Reliance is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding JB Chemicals Pharmaceuticals and Reliance Power Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reliance Power and JB Chemicals 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 JB Chemicals Pharmaceuticals are associated (or correlated) with Reliance Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reliance Power has no effect on the direction of JB Chemicals i.e., JB Chemicals and Reliance Power go up and down completely randomly.

Pair Corralation between JB Chemicals and Reliance Power

Assuming the 90 days trading horizon JB Chemicals Pharmaceuticals is expected to generate 0.55 times more return on investment than Reliance Power. However, JB Chemicals Pharmaceuticals is 1.81 times less risky than Reliance Power. It trades about -0.03 of its potential returns per unit of risk. Reliance Power Limited is currently generating about -0.03 per unit of risk. If you would invest  188,120  in JB Chemicals Pharmaceuticals on October 25, 2024 and sell it today you would lose (7,730) from holding JB Chemicals Pharmaceuticals or give up 4.11% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.77%
Values	Daily Returns

JB Chemicals Pharmaceuticals  vs.  Reliance Power Limited

JB Chemicals Pharmac

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JB Chemicals Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, JB Chemicals is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Reliance Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Reliance Power Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Reliance Power is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with JB Chemicals and Reliance Power

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

The idea behind JB Chemicals Pharmaceuticals and Reliance Power 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.