Correlation Between JSW Steel and Cholamandalam Investment

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

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

Diversification Opportunities for JSW Steel and Cholamandalam Investment

0.66

Correlation Coefficient

JSW Steel  Cholamandalam Investment

Poor diversification

The 3 months correlation between JSW and Cholamandalam is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding JSW Steel Limited and Cholamandalam Investment and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cholamandalam Investment and JSW Steel 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 Steel Limited are associated (or correlated) with Cholamandalam Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cholamandalam Investment has no effect on the direction of JSW Steel i.e., JSW Steel and Cholamandalam Investment go up and down completely randomly.

Pair Corralation between JSW Steel and Cholamandalam Investment

Assuming the 90 days trading horizon JSW Steel Limited is expected to under-perform the Cholamandalam Investment. But the stock apears to be less risky and, when comparing its historical volatility, JSW Steel Limited is 2.26 times less risky than Cholamandalam Investment. The stock trades about -0.42 of its potential returns per unit of risk. The Cholamandalam Investment and is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  128,005  in Cholamandalam Investment and on October 8, 2024 and sell it today you would earn a total of  4,020  from holding Cholamandalam Investment and or generate 3.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.0%
Values	Daily Returns

JSW Steel Limited  vs.  Cholamandalam Investment and

JSW Steel Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JSW Steel Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Cholamandalam Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cholamandalam Investment and has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with JSW Steel and Cholamandalam Investment

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

The idea behind JSW Steel Limited and Cholamandalam Investment and 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 Valuation module to check real value of public entities based on technical and fundamental data.