Correlation Between BF Utilities and NMDC

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

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

Diversification Opportunities for BF Utilities and NMDC

0.62

Correlation Coefficient

BF Utilities  NMDC

Poor diversification

The 3 months correlation between BFUTILITIE and NMDC is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding BF Utilities Limited and NMDC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMDC Limited and BF Utilities 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 BF Utilities Limited are associated (or correlated) with NMDC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NMDC Limited has no effect on the direction of BF Utilities i.e., BF Utilities and NMDC go up and down completely randomly.

Pair Corralation between BF Utilities and NMDC

Assuming the 90 days trading horizon BF Utilities Limited is expected to generate 1.9 times more return on investment than NMDC. However, BF Utilities is 1.9 times more volatile than NMDC Limited. It trades about 0.11 of its potential returns per unit of risk. NMDC Limited is currently generating about 0.05 per unit of risk. If you would invest  78,505  in BF Utilities Limited on August 31, 2024 and sell it today you would earn a total of  20,330  from holding BF Utilities Limited or generate 25.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

BF Utilities Limited  vs.  NMDC Limited

BF Utilities Limited

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BF Utilities Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, BF Utilities demonstrated solid returns over the last few months and may actually be approaching a breakup point.

NMDC Limited

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NMDC Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, NMDC may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with BF Utilities and NMDC

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

The idea behind BF Utilities Limited and NMDC 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.

Check out your portfolio center.

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 Global Correlations module to find global opportunities by holding instruments from different markets.