Correlation Between JM Financial and GM Breweries

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

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

Diversification Opportunities for JM Financial and GM Breweries

0.94

Correlation Coefficient

JM Financial  GM Breweries

Almost no diversification

The 3 months correlation between JMFINANCIL and GMBREW is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding JM Financial Limited and GM Breweries Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GM Breweries Limited and JM 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 JM Financial Limited are associated (or correlated) with GM Breweries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GM Breweries Limited has no effect on the direction of JM Financial i.e., JM Financial and GM Breweries go up and down completely randomly.

Pair Corralation between JM Financial and GM Breweries

Assuming the 90 days trading horizon JM Financial Limited is expected to under-perform the GM Breweries. In addition to that, JM Financial is 1.01 times more volatile than GM Breweries Limited. It trades about -0.25 of its total potential returns per unit of risk. GM Breweries Limited is currently generating about -0.16 per unit of volatility. If you would invest  80,805  in GM Breweries Limited on December 4, 2024 and sell it today you would lose (19,595) from holding GM Breweries Limited or give up 24.25% of portfolio value over 90 days.

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

JM Financial Limited  vs.  GM Breweries Limited

JM Financial Limited

Risk-Adjusted Performance

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 inconsistent performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

GM Breweries Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days GM Breweries Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with JM Financial and GM Breweries

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

The idea behind JM Financial Limited and GM Breweries 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.