Correlation Between NMDC and NMDC Steel

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

Diversification Opportunities for NMDC and NMDC Steel

0.42

Correlation Coefficient

NMDC  NMDC Steel

Very weak diversification

The 3 months correlation between NMDC and NMDC is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding NMDC Limited and NMDC Steel Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMDC 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 NMDC Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NMDC Steel Limited has no effect on the direction of NMDC i.e., NMDC and NMDC Steel go up and down completely randomly.

Pair Corralation between NMDC and NMDC Steel

Assuming the 90 days trading horizon NMDC Limited is expected to generate 1.04 times more return on investment than NMDC Steel. However, NMDC is 1.04 times more volatile than NMDC Steel Limited. It trades about -0.06 of its potential returns per unit of risk. NMDC Steel Limited is currently generating about -0.08 per unit of risk. If you would invest  23,429  in NMDC Limited on September 26, 2024 and sell it today you would lose (2,185) from holding NMDC Limited or give up 9.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

NMDC Limited  vs.  NMDC Steel 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 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.

NMDC Steel Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NMDC Steel Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest uncertain performance, the Stock's forward indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with NMDC and NMDC Steel

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

The idea behind NMDC Limited and NMDC 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.

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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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.