Correlation Between NMDC and Steel Authority

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

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

Diversification Opportunities for NMDC and Steel Authority

0.84

Correlation Coefficient

NMDC  Steel Authority

Very poor diversification

The 3 months correlation between NMDC and Steel is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding NMDC Limited and Steel Authority of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steel Authority 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 Steel Authority. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Steel Authority has no effect on the direction of NMDC i.e., NMDC and Steel Authority go up and down completely randomly.

Pair Corralation between NMDC and Steel Authority

Assuming the 90 days trading horizon NMDC Limited is expected to generate 0.99 times more return on investment than Steel Authority. However, NMDC Limited is 1.01 times less risky than Steel Authority. It trades about 0.05 of its potential returns per unit of risk. Steel Authority of is currently generating about 0.03 per unit of risk. If you would invest  6,464  in NMDC Limited on December 30, 2024 and sell it today you would earn a total of  425.00  from holding NMDC Limited or generate 6.57% return on investment over 90 days.

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

NMDC Limited  vs.  Steel Authority of

NMDC Limited

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NMDC Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, NMDC may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Steel Authority

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Authority of are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Steel Authority is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with NMDC and Steel Authority

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

The idea behind NMDC Limited and Steel Authority of 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.