Correlation Between Garuda Construction and NMDC

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

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

Diversification Opportunities for Garuda Construction and NMDC

-0.08

Correlation Coefficient

Garuda Construction  NMDC

Good diversification

The 3 months correlation between Garuda and NMDC is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Garuda Construction Engineerin and NMDC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMDC Limited and Garuda Construction 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 Garuda Construction Engineering 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 Garuda Construction i.e., Garuda Construction and NMDC go up and down completely randomly.

Pair Corralation between Garuda Construction and NMDC

Assuming the 90 days trading horizon Garuda Construction is expected to generate 3.33 times less return on investment than NMDC. But when comparing it to its historical volatility, Garuda Construction Engineering is 9.03 times less risky than NMDC. It trades about 0.3 of its potential returns per unit of risk. NMDC Limited is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  8,026  in NMDC Limited on October 13, 2024 and sell it today you would lose (1,722) from holding NMDC Limited or give up 21.46% of portfolio value over 90 days.

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

Garuda Construction Engineerin  vs.  NMDC Limited

Garuda Construction

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Garuda Construction Engineering are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Garuda Construction sustained solid returns over the last few months and may actually be approaching a breakup point.

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 uncertain basic indicators, NMDC unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Garuda Construction and NMDC

The main advantage of trading using opposite Garuda Construction and NMDC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Garuda Construction 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 Garuda Construction Engineering 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.