Correlation Between Manali Petrochemicals and NMDC

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

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

Diversification Opportunities for Manali Petrochemicals and NMDC

0.65

Correlation Coefficient

Manali Petrochemicals  NMDC

Poor diversification

The 3 months correlation between Manali and NMDC is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Manali Petrochemicals Limited and NMDC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMDC Limited and Manali Petrochemicals 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 Manali Petrochemicals 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 Manali Petrochemicals i.e., Manali Petrochemicals and NMDC go up and down completely randomly.

Pair Corralation between Manali Petrochemicals and NMDC

Assuming the 90 days trading horizon Manali Petrochemicals Limited is expected to under-perform the NMDC. But the stock apears to be less risky and, when comparing its historical volatility, Manali Petrochemicals Limited is 1.23 times less risky than NMDC. The stock trades about -0.02 of its potential returns per unit of risk. The NMDC Limited is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  6,909  in NMDC Limited on December 25, 2024 and sell it today you would earn a total of  44.00  from holding NMDC Limited or generate 0.64% return on investment over 90 days.

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

Manali Petrochemicals Limited  vs.  NMDC Limited

Manali Petrochemicals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Manali Petrochemicals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, Manali Petrochemicals is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

NMDC Limited

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NMDC Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, NMDC is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Manali Petrochemicals and NMDC

The main advantage of trading using opposite Manali Petrochemicals and NMDC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Manali Petrochemicals 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 Manali Petrochemicals 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.