Correlation Between NMDC and Paradeep Phosphates

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

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

Diversification Opportunities for NMDC and Paradeep Phosphates

0.21

Correlation Coefficient

NMDC  Paradeep Phosphates

Modest diversification

The 3 months correlation between NMDC and Paradeep is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding NMDC Limited and Paradeep Phosphates Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Paradeep Phosphates 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 Paradeep Phosphates. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Paradeep Phosphates has no effect on the direction of NMDC i.e., NMDC and Paradeep Phosphates go up and down completely randomly.

Pair Corralation between NMDC and Paradeep Phosphates

Assuming the 90 days trading horizon NMDC Limited is expected to under-perform the Paradeep Phosphates. But the stock apears to be less risky and, when comparing its historical volatility, NMDC Limited is 1.47 times less risky than Paradeep Phosphates. The stock trades about -0.08 of its potential returns per unit of risk. The Paradeep Phosphates Limited is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  10,485  in Paradeep Phosphates Limited on September 23, 2024 and sell it today you would earn a total of  322.00  from holding Paradeep Phosphates Limited or generate 3.07% return on investment over 90 days.

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

NMDC Limited  vs.  Paradeep Phosphates 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.

Paradeep Phosphates

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Paradeep Phosphates Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Paradeep Phosphates exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NMDC and Paradeep Phosphates

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

The idea behind NMDC Limited and Paradeep Phosphates 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.