Correlation Between JSW Steel and Fineotex Chemical

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

Diversification Opportunities for JSW Steel and Fineotex Chemical

0.04

Correlation Coefficient

JSW Steel  Fineotex Chemical

Significant diversification

The 3 months correlation between JSW and Fineotex is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding JSW Steel Limited and Fineotex Chemical Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fineotex Chemical 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 Fineotex Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fineotex Chemical has no effect on the direction of JSW Steel i.e., JSW Steel and Fineotex Chemical go up and down completely randomly.

Pair Corralation between JSW Steel and Fineotex Chemical

Assuming the 90 days trading horizon JSW Steel Limited is expected to generate 0.45 times more return on investment than Fineotex Chemical. However, JSW Steel Limited is 2.21 times less risky than Fineotex Chemical. It trades about -0.04 of its potential returns per unit of risk. Fineotex Chemical Limited is currently generating about -0.23 per unit of risk. If you would invest  98,980  in JSW Steel Limited on December 1, 2024 and sell it today you would lose (3,910) from holding JSW Steel Limited or give up 3.95% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

JSW Steel Limited  vs.  Fineotex Chemical Limited

JSW Steel Limited

Risk-Adjusted Performance

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 rather sound technical and fundamental indicators, JSW Steel is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Fineotex Chemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fineotex Chemical Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with JSW Steel and Fineotex Chemical

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

The idea behind JSW Steel Limited and Fineotex Chemical 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.