Correlation Between JSW Holdings and Hindustan Construction

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

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

Diversification Opportunities for JSW Holdings and Hindustan Construction

-0.18

Correlation Coefficient

JSW Holdings  Hindustan Construction

Good diversification

The 3 months correlation between JSW and Hindustan is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding JSW Holdings Limited and Hindustan Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hindustan Construction and JSW Holdings 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 JSW Holdings Limited are associated (or correlated) with Hindustan Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hindustan Construction has no effect on the direction of JSW Holdings i.e., JSW Holdings and Hindustan Construction go up and down completely randomly.

Pair Corralation between JSW Holdings and Hindustan Construction

Assuming the 90 days trading horizon JSW Holdings Limited is expected to under-perform the Hindustan Construction. But the stock apears to be less risky and, when comparing its historical volatility, JSW Holdings Limited is 1.17 times less risky than Hindustan Construction. The stock trades about -0.17 of its potential returns per unit of risk. The Hindustan Construction is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  3,734  in Hindustan Construction on September 24, 2024 and sell it today you would earn a total of  622.00  from holding Hindustan Construction or generate 16.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

JSW Holdings Limited  vs.  Hindustan Construction

JSW Holdings Limited

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in JSW Holdings Limited are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, JSW Holdings displayed solid returns over the last few months and may actually be approaching a breakup point.

Hindustan Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hindustan Construction has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Hindustan Construction is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with JSW Holdings and Hindustan Construction

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

The idea behind JSW Holdings Limited and Hindustan Construction 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.