Correlation Between NMDC and Fertilizers

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

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

Diversification Opportunities for NMDC and Fertilizers

0.06

Correlation Coefficient

NMDC  Fertilizers

Significant diversification

The 3 months correlation between NMDC and Fertilizers is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding NMDC Limited and Fertilizers and Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fertilizers and Chemicals 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 Fertilizers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fertilizers and Chemicals has no effect on the direction of NMDC i.e., NMDC and Fertilizers go up and down completely randomly.

Pair Corralation between NMDC and Fertilizers

Assuming the 90 days trading horizon NMDC Limited is expected to generate 0.73 times more return on investment than Fertilizers. However, NMDC Limited is 1.37 times less risky than Fertilizers. It trades about 0.1 of its potential returns per unit of risk. Fertilizers and Chemicals is currently generating about 0.03 per unit of risk. If you would invest  21,400  in NMDC Limited on September 12, 2024 and sell it today you would earn a total of  2,715  from holding NMDC Limited or generate 12.69% return on investment over 90 days.

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

NMDC Limited  vs.  Fertilizers and Chemicals

NMDC Limited

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NMDC Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, NMDC unveiled solid returns over the last few months and may actually be approaching a breakup point.

Fertilizers and Chemicals

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fertilizers and Chemicals are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Fertilizers 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 Fertilizers

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

The idea behind NMDC Limited and Fertilizers and Chemicals 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.