Correlation Between Garuda Construction and NMDC Steel

Can any of the company-specific risk be diversified away by investing in both Garuda Construction 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 Garuda Construction and NMDC Steel 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 Steel Limited, you can compare the effects of market volatilities on Garuda Construction 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 Garuda Construction with a short position of NMDC Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Garuda Construction and NMDC Steel.

Diversification Opportunities for Garuda Construction and NMDC Steel

0.81

Correlation Coefficient

Garuda Construction  NMDC Steel

Very poor diversification

The 3 months correlation between Garuda and NMDC is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Garuda Construction Engineerin 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 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 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 Garuda Construction i.e., Garuda Construction and NMDC Steel go up and down completely randomly.

Pair Corralation between Garuda Construction and NMDC Steel

Assuming the 90 days trading horizon Garuda Construction Engineering is expected to generate 1.48 times more return on investment than NMDC Steel. However, Garuda Construction is 1.48 times more volatile than NMDC Steel Limited. 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  12,944  in Garuda Construction Engineering on December 30, 2024 and sell it today you would lose (2,634) from holding Garuda Construction Engineering or give up 20.35% of portfolio value over 90 days.

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

Garuda Construction Engineerin  vs.  NMDC Steel Limited

Garuda Construction

Risk-Adjusted Performance

Very Weak

Over the last 90 days Garuda Construction Engineering has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

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 Garuda Construction and NMDC Steel

The main advantage of trading using opposite Garuda Construction and NMDC Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Garuda Construction 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 Garuda Construction Engineering 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.

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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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.