Correlation Between Oil Natural and JSW Steel

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

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

Diversification Opportunities for Oil Natural and JSW Steel

-0.58

Correlation Coefficient

Oil Natural  JSW Steel

Excellent diversification

The 3 months correlation between Oil and JSW is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Oil Natural Gas and JSW Steel Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JSW Steel Limited and Oil Natural 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 Oil Natural Gas are associated (or correlated) with JSW Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JSW Steel Limited has no effect on the direction of Oil Natural i.e., Oil Natural and JSW Steel go up and down completely randomly.

Pair Corralation between Oil Natural and JSW Steel

Assuming the 90 days trading horizon Oil Natural is expected to generate 3.25 times less return on investment than JSW Steel. In addition to that, Oil Natural is 1.6 times more volatile than JSW Steel Limited. It trades about 0.03 of its total potential returns per unit of risk. JSW Steel Limited is currently generating about 0.16 per unit of volatility. If you would invest  93,705  in JSW Steel Limited on December 23, 2024 and sell it today you would earn a total of  12,165  from holding JSW Steel Limited or generate 12.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Oil Natural Gas  vs.  JSW Steel Limited

Oil Natural Gas

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Oil Natural Gas are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Oil Natural is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

JSW Steel Limited

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in JSW Steel Limited are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, JSW Steel exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Oil Natural and JSW Steel

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

The idea behind Oil Natural Gas and JSW Steel 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.