Correlation Between Hindustan Construction and NMDC Steel

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

Diversification Opportunities for Hindustan Construction and NMDC Steel

0.96

Correlation Coefficient

Hindustan Construction  NMDC Steel

Almost no diversification

The 3 months correlation between Hindustan and NMDC is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Hindustan Construction 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 Hindustan 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 Hindustan Construction 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 Hindustan Construction i.e., Hindustan Construction and NMDC Steel go up and down completely randomly.

Pair Corralation between Hindustan Construction and NMDC Steel

Assuming the 90 days trading horizon Hindustan Construction is expected to under-perform the NMDC Steel. In addition to that, Hindustan Construction is 1.47 times more volatile than NMDC Steel Limited. It trades about -0.27 of its total potential returns per unit of risk. NMDC Steel Limited is currently generating about -0.2 per unit of volatility. If you would invest  4,825  in NMDC Steel Limited on December 3, 2024 and sell it today you would lose (1,383) from holding NMDC Steel Limited or give up 28.66% of portfolio value over 90 days.

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

Hindustan Construction  vs.  NMDC Steel Limited

Hindustan Construction

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hindustan Construction has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing 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 weak 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 Hindustan Construction and NMDC Steel

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