Correlation Between NMDC and JSW Steel

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

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

Diversification Opportunities for NMDC and JSW Steel

0.59

Correlation Coefficient

NMDC  JSW Steel

Very weak diversification

The 3 months correlation between NMDC and JSW is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding NMDC Limited and JSW Steel Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JSW Steel Limited 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 JSW Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JSW Steel Limited has no effect on the direction of NMDC i.e., NMDC and JSW Steel go up and down completely randomly.

Pair Corralation between NMDC and JSW Steel

Assuming the 90 days trading horizon NMDC Limited is expected to under-perform the JSW Steel. In addition to that, NMDC is 1.95 times more volatile than JSW Steel Limited. It trades about -0.13 of its total potential returns per unit of risk. JSW Steel Limited is currently generating about -0.04 per unit of volatility. If you would invest  98,980  in JSW Steel Limited on December 1, 2024 and sell it today you would lose (3,910) from holding JSW Steel Limited or give up 3.95% of portfolio value over 90 days.

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

NMDC Limited  vs.  JSW Steel 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.

JSW Steel Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days JSW Steel Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, JSW Steel is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with NMDC and JSW Steel

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

The idea behind NMDC Limited and JSW Steel 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.