Correlation Between JM Financial and Sapphire Foods

Can any of the company-specific risk be diversified away by investing in both JM Financial and Sapphire Foods 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 Sapphire Foods 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 Sapphire Foods India, you can compare the effects of market volatilities on JM Financial and Sapphire Foods 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 Sapphire Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of JM Financial and Sapphire Foods.

Diversification Opportunities for JM Financial and Sapphire Foods

0.49

Correlation Coefficient

JM Financial  Sapphire Foods

Very weak diversification

The 3 months correlation between JMFINANCIL and Sapphire is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding JM Financial Limited and Sapphire Foods India in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sapphire Foods India 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 Sapphire Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sapphire Foods India has no effect on the direction of JM Financial i.e., JM Financial and Sapphire Foods go up and down completely randomly.

Pair Corralation between JM Financial and Sapphire Foods

Assuming the 90 days trading horizon JM Financial Limited is expected to generate 1.39 times more return on investment than Sapphire Foods. However, JM Financial is 1.39 times more volatile than Sapphire Foods India. It trades about 0.08 of its potential returns per unit of risk. Sapphire Foods India is currently generating about -0.04 per unit of risk. If you would invest  12,229  in JM Financial Limited on September 19, 2024 and sell it today you would earn a total of  1,571  from holding JM Financial Limited or generate 12.85% return on investment over 90 days.

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

JM Financial Limited  vs.  Sapphire Foods India

JM Financial Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in JM Financial Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent fundamental indicators, JM Financial displayed solid returns over the last few months and may actually be approaching a breakup point.

Sapphire Foods India

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sapphire Foods India has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward indicators, Sapphire Foods is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with JM Financial and Sapphire Foods

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

The idea behind JM Financial Limited and Sapphire Foods India 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.