Correlation Between NMDC and IG Petrochemicals

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

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

Diversification Opportunities for NMDC and IG Petrochemicals

0.1

Correlation Coefficient

NMDC  IG Petrochemicals

Average diversification

The 3 months correlation between NMDC and IGPL is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding NMDC Limited and IG Petrochemicals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IG Petrochemicals 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 IG Petrochemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IG Petrochemicals has no effect on the direction of NMDC i.e., NMDC and IG Petrochemicals go up and down completely randomly.

Pair Corralation between NMDC and IG Petrochemicals

Assuming the 90 days trading horizon NMDC Limited is expected to under-perform the IG Petrochemicals. But the stock apears to be less risky and, when comparing its historical volatility, NMDC Limited is 1.25 times less risky than IG Petrochemicals. The stock trades about -0.05 of its potential returns per unit of risk. The IG Petrochemicals Limited is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  59,347  in IG Petrochemicals Limited on September 19, 2024 and sell it today you would lose (2,127) from holding IG Petrochemicals Limited or give up 3.58% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.19%
Values	Daily Returns

NMDC Limited  vs.  IG Petrochemicals Limited

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

IG Petrochemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IG Petrochemicals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with NMDC and IG Petrochemicals

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

The idea behind NMDC Limited and IG Petrochemicals 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.

Check out your portfolio center.

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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.