Correlation Between JSW Steel and MRF

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

Diversification Opportunities for JSW Steel and MRF

0.31

Correlation Coefficient

JSW Steel  MRF

Weak diversification

The 3 months correlation between JSW and MRF is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding JSW Steel Limited and MRF Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MRF Limited 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 MRF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MRF Limited has no effect on the direction of JSW Steel i.e., JSW Steel and MRF go up and down completely randomly.

Pair Corralation between JSW Steel and MRF

Assuming the 90 days trading horizon JSW Steel Limited is expected to under-perform the MRF. In addition to that, JSW Steel is 1.27 times more volatile than MRF Limited. It trades about -0.14 of its total potential returns per unit of risk. MRF Limited is currently generating about 0.12 per unit of volatility. If you would invest  11,953,000  in MRF Limited on October 6, 2024 and sell it today you would earn a total of  683,300  from holding MRF Limited or generate 5.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	97.62%
Values	Daily Returns

JSW Steel Limited  vs.  MRF Limited

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 weak 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.

MRF Limited

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with JSW Steel and MRF

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

The idea behind JSW Steel Limited and MRF 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.