Correlation Between NMDC and Indian Metals

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

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

Diversification Opportunities for NMDC and Indian Metals

0.61

Correlation Coefficient

NMDC  Indian Metals

Poor diversification

The 3 months correlation between NMDC and Indian is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding NMDC Limited and Indian Metals Ferro in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indian Metals Ferro 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 Indian Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indian Metals Ferro has no effect on the direction of NMDC i.e., NMDC and Indian Metals go up and down completely randomly.

Pair Corralation between NMDC and Indian Metals

Assuming the 90 days trading horizon NMDC Limited is expected to generate 0.78 times more return on investment than Indian Metals. However, NMDC Limited is 1.28 times less risky than Indian Metals. It trades about -0.1 of its potential returns per unit of risk. Indian Metals Ferro is currently generating about -0.14 per unit of risk. If you would invest  7,669  in NMDC Limited on November 29, 2024 and sell it today you would lose (1,188) from holding NMDC Limited or give up 15.49% of portfolio value over 90 days.

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

NMDC Limited  vs.  Indian Metals Ferro

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 uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in March 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Indian Metals Ferro

Risk-Adjusted Performance

Very Weak

Over the last 90 days Indian Metals Ferro 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 March 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with NMDC and Indian Metals

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

The idea behind NMDC Limited and Indian Metals Ferro 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.