Correlation Between JSW Steel and NMDC

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

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

Diversification Opportunities for JSW Steel and NMDC

0.78

Correlation Coefficient

JSW Steel  NMDC

Poor diversification

The 3 months correlation between JSW and NMDC is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding JSW Steel Limited and NMDC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMDC Limited and JSW Steel 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 JSW Steel Limited 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 JSW Steel i.e., JSW Steel and NMDC go up and down completely randomly.

Pair Corralation between JSW Steel and NMDC

Assuming the 90 days trading horizon JSW Steel is expected to generate 2.43 times less return on investment than NMDC. But when comparing it to its historical volatility, JSW Steel Limited is 1.42 times less risky than NMDC. It trades about 0.04 of its potential returns per unit of risk. NMDC Limited is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  21,493  in NMDC Limited on September 2, 2024 and sell it today you would earn a total of  1,514  from holding NMDC Limited or generate 7.04% return on investment over 90 days.

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

JSW Steel Limited  vs.  NMDC Limited

JSW Steel Limited

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in JSW Steel Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, JSW Steel is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

NMDC Limited

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NMDC Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, NMDC may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with JSW Steel and NMDC

The main advantage of trading using opposite JSW Steel and NMDC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if JSW Steel 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 JSW Steel Limited 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.