Correlation Between JSW Steel and VA Tech

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

Diversification Opportunities for JSW Steel and VA Tech

0.06

Correlation Coefficient

JSW Steel  VA Tech

Significant diversification

The 3 months correlation between JSW and WABAG is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding JSW Steel Limited and VA Tech Wabag in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VA Tech Wabag 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 VA Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VA Tech Wabag has no effect on the direction of JSW Steel i.e., JSW Steel and VA Tech go up and down completely randomly.

Pair Corralation between JSW Steel and VA Tech

Assuming the 90 days trading horizon JSW Steel Limited is expected to under-perform the VA Tech. But the stock apears to be less risky and, when comparing its historical volatility, JSW Steel Limited is 1.96 times less risky than VA Tech. The stock trades about -0.14 of its potential returns per unit of risk. The VA Tech Wabag is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  172,075  in VA Tech Wabag on October 6, 2024 and sell it today you would lose (7,785) from holding VA Tech Wabag or give up 4.52% of portfolio value over 90 days.

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

JSW Steel Limited  vs.  VA Tech Wabag

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.

VA Tech Wabag

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in VA Tech Wabag are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental drivers, VA Tech displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with JSW Steel and VA Tech

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

The idea behind JSW Steel Limited and VA Tech Wabag 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.

Check out your portfolio center.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.