Correlation Between Bank of Maharashtra and JSW Holdings

Can any of the company-specific risk be diversified away by investing in both Bank of Maharashtra and JSW Holdings 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 Bank of Maharashtra and JSW Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Bank of Maharashtra and JSW Holdings Limited, you can compare the effects of market volatilities on Bank of Maharashtra and JSW Holdings 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 Bank of Maharashtra with a short position of JSW Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of Maharashtra and JSW Holdings.

Diversification Opportunities for Bank of Maharashtra and JSW Holdings

-0.15

Correlation Coefficient

Bank of Maharashtra  JSW Holdings

Good diversification

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

Pair Corralation between Bank of Maharashtra and JSW Holdings

Assuming the 90 days trading horizon Bank of Maharashtra is expected to under-perform the JSW Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Bank of Maharashtra is 1.64 times less risky than JSW Holdings. The stock trades about -0.25 of its potential returns per unit of risk. The JSW Holdings Limited is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest  1,412,920  in JSW Holdings Limited on October 10, 2024 and sell it today you would earn a total of  396,285  from holding JSW Holdings Limited or generate 28.05% return on investment over 90 days.

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

Bank of Maharashtra  vs.  JSW Holdings Limited

Bank of Maharashtra

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank of Maharashtra has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Bank of Maharashtra is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

JSW Holdings Limited

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in JSW Holdings Limited are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, JSW Holdings displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank of Maharashtra and JSW Holdings

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

The idea behind Bank of Maharashtra and JSW Holdings 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.