Correlation Between NMDC and Kothari Petrochemicals

Can any of the company-specific risk be diversified away by investing in both NMDC and Kothari 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 Kothari 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 Kothari Petrochemicals Limited, you can compare the effects of market volatilities on NMDC and Kothari 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 Kothari Petrochemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of NMDC and Kothari Petrochemicals.

Diversification Opportunities for NMDC and Kothari Petrochemicals

0.11

Correlation Coefficient

NMDC  Kothari Petrochemicals

Average diversification

The 3 months correlation between NMDC and Kothari is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding NMDC Limited and Kothari Petrochemicals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kothari 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 Kothari Petrochemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kothari Petrochemicals has no effect on the direction of NMDC i.e., NMDC and Kothari Petrochemicals go up and down completely randomly.

Pair Corralation between NMDC and Kothari Petrochemicals

Assuming the 90 days trading horizon NMDC is expected to generate 1.09 times less return on investment than Kothari Petrochemicals. But when comparing it to its historical volatility, NMDC Limited is 1.25 times less risky than Kothari Petrochemicals. It trades about 0.04 of its potential returns per unit of risk. Kothari Petrochemicals Limited is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  16,156  in Kothari Petrochemicals Limited on September 23, 2024 and sell it today you would earn a total of  3,064  from holding Kothari Petrochemicals Limited or generate 18.97% return on investment over 90 days.

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

NMDC Limited  vs.  Kothari Petrochemicals Limited

NMDC Limited

Risk-Adjusted Performance

0 of 100

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 comparatively stable basic indicators, NMDC is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Kothari Petrochemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kothari Petrochemicals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with NMDC and Kothari Petrochemicals

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

The idea behind NMDC Limited and Kothari 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.

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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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.