Correlation Between JSW Steel and Dodla Dairy

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

Diversification Opportunities for JSW Steel and Dodla Dairy

0.04

Correlation Coefficient

JSW Steel  Dodla Dairy

Significant diversification

The 3 months correlation between JSW and Dodla is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding JSW Steel Limited and Dodla Dairy Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dodla Dairy Limited 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 Dodla Dairy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dodla Dairy Limited has no effect on the direction of JSW Steel i.e., JSW Steel and Dodla Dairy go up and down completely randomly.

Pair Corralation between JSW Steel and Dodla Dairy

Assuming the 90 days trading horizon JSW Steel Limited is expected to under-perform the Dodla Dairy. But the stock apears to be less risky and, when comparing its historical volatility, JSW Steel Limited is 1.37 times less risky than Dodla Dairy. The stock trades about -0.07 of its potential returns per unit of risk. The Dodla Dairy Limited is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  120,633  in Dodla Dairy Limited on September 22, 2024 and sell it today you would earn a total of  4,032  from holding Dodla Dairy Limited or generate 3.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

JSW Steel Limited  vs.  Dodla Dairy Limited

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 rather sound technical and fundamental indicators, JSW Steel is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Dodla Dairy Limited

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dodla Dairy Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Dodla Dairy is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with JSW Steel and Dodla Dairy

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

The idea behind JSW Steel Limited and Dodla Dairy 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.