Correlation Between NMDC and Agro Tech

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

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

Diversification Opportunities for NMDC and Agro Tech

-0.01

Correlation Coefficient

NMDC  Agro Tech

Good diversification

The 3 months correlation between NMDC and Agro is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding NMDC Limited and Agro Tech Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Agro Tech Foods and NMDC 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 NMDC Limited are associated (or correlated) with Agro Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Agro Tech Foods has no effect on the direction of NMDC i.e., NMDC and Agro Tech go up and down completely randomly.

Pair Corralation between NMDC and Agro Tech

Assuming the 90 days trading horizon NMDC Limited is expected to generate 23.05 times more return on investment than Agro Tech. However, NMDC is 23.05 times more volatile than Agro Tech Foods. It trades about 0.11 of its potential returns per unit of risk. Agro Tech Foods is currently generating about -0.09 per unit of risk. If you would invest  8,132  in NMDC Limited on October 11, 2024 and sell it today you would lose (1,532) from holding NMDC Limited or give up 18.84% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

NMDC Limited  vs.  Agro Tech Foods

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.

Agro Tech Foods

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days Agro Tech Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Agro Tech 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 NMDC and Agro Tech

The main advantage of trading using opposite NMDC and Agro Tech positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NMDC position performs unexpectedly, Agro Tech 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 Agro Tech will offset losses from the drop in Agro Tech's long position.

The idea behind NMDC Limited and Agro Tech Foods 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.