Correlation Between JSW Steel and Reliance Communications

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

Diversification Opportunities for JSW Steel and Reliance Communications

0.15

Correlation Coefficient

JSW Steel  Reliance Communications

Average diversification

The 3 months correlation between JSW and Reliance is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding JSW Steel Limited and Reliance Communications Limite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reliance 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 Reliance Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reliance Communications has no effect on the direction of JSW Steel i.e., JSW Steel and Reliance Communications go up and down completely randomly.

Pair Corralation between JSW Steel and Reliance Communications

Assuming the 90 days trading horizon JSW Steel Limited is expected to under-perform the Reliance Communications. But the stock apears to be less risky and, when comparing its historical volatility, JSW Steel Limited is 1.81 times less risky than Reliance Communications. The stock trades about -0.01 of its potential returns per unit of risk. The Reliance Communications Limited is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  190.00  in Reliance Communications Limited on September 27, 2024 and sell it today you would earn a total of  19.00  from holding Reliance Communications Limited or generate 10.0% return on investment over 90 days.

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

JSW Steel Limited  vs.  Reliance Communications Limite

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 inconsistent 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.

Reliance Communications

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Communications Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Reliance Communications may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with JSW Steel and Reliance Communications

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

The idea behind JSW Steel Limited and Reliance 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.