Correlation Between NMDC and Gujarat Fluorochemicals

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

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

Diversification Opportunities for NMDC and Gujarat Fluorochemicals

0.25

Correlation Coefficient

NMDC  Gujarat Fluorochemicals

Modest diversification

The 3 months correlation between NMDC and Gujarat is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding NMDC Limited and Gujarat Fluorochemicals Limite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gujarat Fluorochemicals 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 Gujarat Fluorochemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gujarat Fluorochemicals has no effect on the direction of NMDC i.e., NMDC and Gujarat Fluorochemicals go up and down completely randomly.

Pair Corralation between NMDC and Gujarat Fluorochemicals

Assuming the 90 days trading horizon NMDC is expected to generate 2.79 times less return on investment than Gujarat Fluorochemicals. But when comparing it to its historical volatility, NMDC Limited is 1.41 times less risky than Gujarat Fluorochemicals. It trades about 0.07 of its potential returns per unit of risk. Gujarat Fluorochemicals Limited is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  316,332  in Gujarat Fluorochemicals Limited on September 3, 2024 and sell it today you would earn a total of  79,388  from holding Gujarat Fluorochemicals Limited or generate 25.1% return on investment over 90 days.

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

NMDC Limited  vs.  Gujarat Fluorochemicals Limite

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 inconsistent basic indicators, NMDC may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Gujarat Fluorochemicals

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gujarat Fluorochemicals Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical indicators, Gujarat Fluorochemicals exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NMDC and Gujarat Fluorochemicals

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

The idea behind NMDC Limited and Gujarat Fluorochemicals 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.