Correlation Between NMDC and Hi-Tech Pipes

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

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

Diversification Opportunities for NMDC and Hi-Tech Pipes

0.78

Correlation Coefficient

NMDC  Hi-Tech Pipes

Poor diversification

The 3 months correlation between NMDC and Hi-Tech is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding NMDC Limited and Hi Tech Pipes Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hi Tech Pipes 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 Hi-Tech Pipes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hi Tech Pipes has no effect on the direction of NMDC i.e., NMDC and Hi-Tech Pipes go up and down completely randomly.

Pair Corralation between NMDC and Hi-Tech Pipes

Assuming the 90 days trading horizon NMDC Limited is expected to generate 0.84 times more return on investment than Hi-Tech Pipes. However, NMDC Limited is 1.19 times less risky than Hi-Tech Pipes. It trades about -0.13 of its potential returns per unit of risk. Hi Tech Pipes Limited is currently generating about -0.23 per unit of risk. If you would invest  7,725  in NMDC Limited on December 1, 2024 and sell it today you would lose (1,477) from holding NMDC Limited or give up 19.12% of portfolio value over 90 days.

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

NMDC Limited  vs.  Hi Tech Pipes Limited

NMDC Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days NMDC Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Hi Tech Pipes

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hi Tech Pipes Limited 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.

Pair Trading with NMDC and Hi-Tech Pipes

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

The idea behind NMDC Limited and Hi Tech Pipes 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.