Correlation Between NMDC and Steelcast

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

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

Diversification Opportunities for NMDC and Steelcast

0.36

Correlation Coefficient

NMDC  Steelcast

Weak diversification

The 3 months correlation between NMDC and Steelcast is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding NMDC Limited and Steelcast Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steelcast 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 Steelcast. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Steelcast Limited has no effect on the direction of NMDC i.e., NMDC and Steelcast go up and down completely randomly.

Pair Corralation between NMDC and Steelcast

Assuming the 90 days trading horizon NMDC is expected to generate 2.44 times less return on investment than Steelcast. But when comparing it to its historical volatility, NMDC Limited is 1.34 times less risky than Steelcast. It trades about 0.06 of its potential returns per unit of risk. Steelcast Limited is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  66,745  in Steelcast Limited on September 2, 2024 and sell it today you would earn a total of  13,055  from holding Steelcast Limited or generate 19.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

NMDC Limited  vs.  Steelcast Limited

NMDC Limited

Risk-Adjusted Performance

4 of 100

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 unfluctuating basic indicators, NMDC may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Steelcast Limited

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Steelcast Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental indicators, Steelcast sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NMDC and Steelcast

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

The idea behind NMDC Limited and Steelcast 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.