Correlation Between NIFTY SUMER and JB Chemicals

Can any of the company-specific risk be diversified away by investing in both NIFTY SUMER and JB Chemicals 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 NIFTY SUMER and JB Chemicals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between NIFTY SUMER DURABLES and JB Chemicals Pharmaceuticals, you can compare the effects of market volatilities on NIFTY SUMER and JB Chemicals 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 NIFTY SUMER with a short position of JB Chemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of NIFTY SUMER and JB Chemicals.

Diversification Opportunities for NIFTY SUMER and JB Chemicals

0.41

Correlation Coefficient

NIFTY SUMER  JB Chemicals

Very weak diversification

The 3 months correlation between NIFTY and JBCHEPHARM is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding NIFTY SUMER DURABLES and JB Chemicals Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JB Chemicals Pharmac and NIFTY SUMER 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 NIFTY SUMER DURABLES are associated (or correlated) with JB Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JB Chemicals Pharmac has no effect on the direction of NIFTY SUMER i.e., NIFTY SUMER and JB Chemicals go up and down completely randomly.

Pair Corralation between NIFTY SUMER and JB Chemicals

Assuming the 90 days trading horizon NIFTY SUMER DURABLES is expected to generate 0.54 times more return on investment than JB Chemicals. However, NIFTY SUMER DURABLES is 1.87 times less risky than JB Chemicals. It trades about -0.01 of its potential returns per unit of risk. JB Chemicals Pharmaceuticals is currently generating about -0.02 per unit of risk. If you would invest  4,329,870  in NIFTY SUMER DURABLES on September 15, 2024 and sell it today you would lose (39,535) from holding NIFTY SUMER DURABLES or give up 0.91% of portfolio value over 90 days.

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

NIFTY SUMER DURABLES  vs.  JB Chemicals Pharmaceuticals

Pair Trading with NIFTY SUMER and JB Chemicals

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

The idea behind NIFTY SUMER DURABLES and JB Chemicals Pharmaceuticals 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.