Correlation Between Cambridge Technology and NMDC

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

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

Diversification Opportunities for Cambridge Technology and NMDC

0.06

Correlation Coefficient

Cambridge Technology  NMDC

Significant diversification

The 3 months correlation between Cambridge and NMDC is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Cambridge Technology Enterpris and NMDC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMDC Limited and Cambridge Technology 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 Cambridge Technology Enterprises 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 Cambridge Technology i.e., Cambridge Technology and NMDC go up and down completely randomly.

Pair Corralation between Cambridge Technology and NMDC

Assuming the 90 days trading horizon Cambridge Technology is expected to generate 23.06 times less return on investment than NMDC. But when comparing it to its historical volatility, Cambridge Technology Enterprises is 8.39 times less risky than NMDC. It trades about 0.03 of its potential returns per unit of risk. NMDC Limited is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  7,276  in NMDC Limited on October 23, 2024 and sell it today you would lose (565.00) from holding NMDC Limited or give up 7.77% of portfolio value over 90 days.

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

Cambridge Technology Enterpris  vs.  NMDC Limited

Cambridge Technology

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cambridge Technology Enterprises are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Cambridge Technology is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

NMDC Limited

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NMDC Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, NMDC unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cambridge Technology and NMDC

The main advantage of trading using opposite Cambridge Technology and NMDC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cambridge Technology 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 Cambridge Technology Enterprises 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.