Correlation Between Indian Oil and JSW Steel

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

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

Diversification Opportunities for Indian Oil and JSW Steel

0.11

Correlation Coefficient

Indian Oil  JSW Steel

Average diversification

The 3 months correlation between Indian and JSW is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Indian Oil 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 Indian Oil 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 Indian Oil 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 Indian Oil i.e., Indian Oil and JSW Steel go up and down completely randomly.

Pair Corralation between Indian Oil and JSW Steel

Assuming the 90 days trading horizon Indian Oil is expected to generate 1.43 times more return on investment than JSW Steel. However, Indian Oil is 1.43 times more volatile than JSW Steel Limited. It trades about 0.05 of its potential returns per unit of risk. JSW Steel Limited is currently generating about 0.05 per unit of risk. If you would invest  11,272  in Indian Oil on September 4, 2024 and sell it today you would earn a total of  2,679  from holding Indian Oil or generate 23.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.59%
Values	Daily Returns

Indian Oil  vs.  JSW Steel Limited

Indian Oil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Indian Oil has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

JSW Steel Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in JSW Steel Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent technical and fundamental indicators, JSW Steel may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Indian Oil and JSW Steel

The main advantage of trading using opposite Indian Oil and JSW Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Indian Oil 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 Indian Oil 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.