Correlation Between JSW Steel and Paramount Communications

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

Diversification Opportunities for JSW Steel and Paramount Communications

0.24

Correlation Coefficient

JSW Steel  Paramount Communications

Modest diversification

The 3 months correlation between JSW and Paramount is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding JSW Steel Limited and Paramount Communications Limit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Paramount Communications 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 Paramount Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Paramount Communications has no effect on the direction of JSW Steel i.e., JSW Steel and Paramount Communications go up and down completely randomly.

Pair Corralation between JSW Steel and Paramount Communications

Assuming the 90 days trading horizon JSW Steel Limited is expected to under-perform the Paramount Communications. But the stock apears to be less risky and, when comparing its historical volatility, JSW Steel Limited is 2.16 times less risky than Paramount Communications. The stock trades about -0.11 of its potential returns per unit of risk. The Paramount Communications Limited is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  6,822  in Paramount Communications Limited on September 25, 2024 and sell it today you would earn a total of  1,561  from holding Paramount Communications Limited or generate 22.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

JSW Steel Limited  vs.  Paramount Communications Limit

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 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.

Paramount Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Paramount Communications Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong essential indicators, Paramount Communications is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with JSW Steel and Paramount Communications

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

The idea behind JSW Steel Limited and Paramount Communications 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.