Correlation Between Indian Metals and NMDC

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

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

Diversification Opportunities for Indian Metals and NMDC

0.61

Correlation Coefficient

Indian Metals  NMDC

Poor diversification

The 3 months correlation between Indian and NMDC is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Indian Metals Ferro and NMDC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMDC Limited and Indian Metals 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 Indian Metals Ferro 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 Indian Metals i.e., Indian Metals and NMDC go up and down completely randomly.

Pair Corralation between Indian Metals and NMDC

Assuming the 90 days trading horizon Indian Metals Ferro is expected to under-perform the NMDC. In addition to that, Indian Metals is 1.28 times more volatile than NMDC Limited. It trades about -0.14 of its total potential returns per unit of risk. NMDC Limited is currently generating about -0.1 per unit of volatility. If you would invest  7,669  in NMDC Limited on November 29, 2024 and sell it today you would lose (1,188) from holding NMDC Limited or give up 15.49% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Indian Metals Ferro  vs.  NMDC Limited

Indian Metals Ferro

Risk-Adjusted Performance

Very Weak

Over the last 90 days Indian Metals Ferro 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 basic indicators remain comparatively stable which may send shares a bit higher in March 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

NMDC Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days NMDC Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in March 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Indian Metals and NMDC

The main advantage of trading using opposite Indian Metals and NMDC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Indian Metals 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 Indian Metals Ferro 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.