Correlation Between HDFC Asset and NMDC

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

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

Diversification Opportunities for HDFC Asset and NMDC

-0.05

Correlation Coefficient

HDFC Asset  NMDC

Good diversification

The 3 months correlation between HDFC and NMDC is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding HDFC Asset Management and NMDC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMDC Limited and HDFC Asset 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 HDFC Asset Management 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 HDFC Asset i.e., HDFC Asset and NMDC go up and down completely randomly.

Pair Corralation between HDFC Asset and NMDC

Assuming the 90 days trading horizon HDFC Asset Management is expected to under-perform the NMDC. But the stock apears to be less risky and, when comparing its historical volatility, HDFC Asset Management is 39.16 times less risky than NMDC. The stock trades about -0.22 of its potential returns per unit of risk. The NMDC Limited is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  8,051  in NMDC Limited on October 8, 2024 and sell it today you would lose (1,285) from holding NMDC Limited or give up 15.96% of portfolio value over 90 days.

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

HDFC Asset Management  vs.  NMDC Limited

HDFC Asset Management

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in HDFC Asset Management are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, HDFC Asset is not utilizing all of its potentials. The recent 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 uncertain basic indicators, NMDC unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HDFC Asset and NMDC

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

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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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.