Correlation Between JSW Holdings and HDFC Life

Can any of the company-specific risk be diversified away by investing in both JSW Holdings and HDFC Life 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 HDFC Life 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 HDFC Life Insurance, you can compare the effects of market volatilities on JSW Holdings and HDFC Life 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 HDFC Life. Check out your portfolio center. Please also check ongoing floating volatility patterns of JSW Holdings and HDFC Life.

Diversification Opportunities for JSW Holdings and HDFC Life

0.51

Correlation Coefficient

JSW Holdings  HDFC Life

Very weak diversification

The 3 months correlation between JSW and HDFC is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding JSW Holdings Limited and HDFC Life Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HDFC Life Insurance 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 HDFC Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HDFC Life Insurance has no effect on the direction of JSW Holdings i.e., JSW Holdings and HDFC Life go up and down completely randomly.

Pair Corralation between JSW Holdings and HDFC Life

Assuming the 90 days trading horizon JSW Holdings Limited is expected to generate 2.14 times more return on investment than HDFC Life. However, JSW Holdings is 2.14 times more volatile than HDFC Life Insurance. It trades about 0.25 of its potential returns per unit of risk. HDFC Life Insurance is currently generating about 0.1 per unit of risk. If you would invest  1,418,140  in JSW Holdings Limited on December 24, 2024 and sell it today you would earn a total of  877,325  from holding JSW Holdings Limited or generate 61.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

JSW Holdings Limited  vs.  HDFC Life Insurance

JSW Holdings Limited

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in JSW Holdings Limited are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, JSW Holdings displayed solid returns over the last few months and may actually be approaching a breakup point.

HDFC Life Insurance

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Life Insurance are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain forward indicators, HDFC Life may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with JSW Holdings and HDFC Life

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

The idea behind JSW Holdings Limited and HDFC Life Insurance 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.