Correlation Between City Union and NMDC Steel

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

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

Diversification Opportunities for City Union and NMDC Steel

0.84

Correlation Coefficient

City Union  NMDC Steel

Very poor diversification

The 3 months correlation between City and NMDC is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding City Union Bank and NMDC Steel Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMDC Steel Limited and City Union 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 City Union Bank are associated (or correlated) with NMDC Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NMDC Steel Limited has no effect on the direction of City Union i.e., City Union and NMDC Steel go up and down completely randomly.

Pair Corralation between City Union and NMDC Steel

Assuming the 90 days trading horizon City Union Bank is expected to generate 0.67 times more return on investment than NMDC Steel. However, City Union Bank is 1.49 times less risky than NMDC Steel. It trades about -0.07 of its potential returns per unit of risk. NMDC Steel Limited is currently generating about -0.13 per unit of risk. If you would invest  17,246  in City Union Bank on December 30, 2024 and sell it today you would lose (1,528) from holding City Union Bank or give up 8.86% of portfolio value over 90 days.

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

City Union Bank  vs.  NMDC Steel Limited

City Union Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days City Union Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

NMDC Steel Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days NMDC Steel Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Even with fragile performance in the last few months, the Stock's forward indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with City Union and NMDC Steel

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

The idea behind City Union Bank and NMDC 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.

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.