Correlation Between NMDC and Industrial Investment

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

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

Diversification Opportunities for NMDC and Industrial Investment

0.06

Correlation Coefficient

NMDC  Industrial Investment

Significant diversification

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

Pair Corralation between NMDC and Industrial Investment

Assuming the 90 days trading horizon NMDC Limited is expected to generate 8.73 times more return on investment than Industrial Investment. However, NMDC is 8.73 times more volatile than Industrial Investment Trust. It trades about 0.07 of its potential returns per unit of risk. Industrial Investment Trust is currently generating about 0.08 per unit of risk. If you would invest  6,467  in NMDC Limited on October 6, 2024 and sell it today you would earn a total of  299.00  from holding NMDC Limited or generate 4.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.59%
Values	Daily Returns

NMDC Limited  vs.  Industrial Investment Trust

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 unveiled solid returns over the last few months and may actually be approaching a breakup point.

Industrial Investment

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial Investment Trust are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Industrial Investment unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NMDC and Industrial Investment

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

The idea behind NMDC Limited and Industrial Investment Trust 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.