Correlation Between N B and NMDC Steel

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

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

Diversification Opportunities for N B and NMDC Steel

0.6

Correlation Coefficient

N B  NMDC Steel

Poor diversification

The 3 months correlation between NBIFIN and NMDC is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding N B I 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 N B 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 N B I 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 N B i.e., N B and NMDC Steel go up and down completely randomly.

Pair Corralation between N B and NMDC Steel

Assuming the 90 days trading horizon N B I is expected to under-perform the NMDC Steel. In addition to that, N B is 1.02 times more volatile than NMDC Steel Limited. It trades about -0.18 of its total potential returns per unit of risk. NMDC Steel Limited is currently generating about -0.13 per unit of volatility. If you would invest  4,293  in NMDC Steel Limited on December 30, 2024 and sell it today you would lose (957.00) from holding NMDC Steel Limited or give up 22.29% of portfolio value over 90 days.

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

N B I  vs.  NMDC Steel Limited

N B I

Risk-Adjusted Performance

Very Weak

Over the last 90 days N B I has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

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 fragile 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 N B and NMDC Steel

The main advantage of trading using opposite N B and NMDC Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if N B 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 N B I 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.