Correlation Between NMDC and Thirumalai Chemicals

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

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

Diversification Opportunities for NMDC and Thirumalai Chemicals

-0.1

Correlation Coefficient

NMDC  Thirumalai Chemicals

Good diversification

The 3 months correlation between NMDC and Thirumalai is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding NMDC Limited and Thirumalai Chemicals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thirumalai Chemicals 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 Thirumalai Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thirumalai Chemicals has no effect on the direction of NMDC i.e., NMDC and Thirumalai Chemicals go up and down completely randomly.

Pair Corralation between NMDC and Thirumalai Chemicals

Assuming the 90 days trading horizon NMDC is expected to generate 1.6 times less return on investment than Thirumalai Chemicals. But when comparing it to its historical volatility, NMDC Limited is 1.19 times less risky than Thirumalai Chemicals. It trades about 0.06 of its potential returns per unit of risk. Thirumalai Chemicals Limited is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  33,540  in Thirumalai Chemicals Limited on September 2, 2024 and sell it today you would earn a total of  4,020  from holding Thirumalai Chemicals Limited or generate 11.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

NMDC Limited  vs.  Thirumalai Chemicals 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.

Thirumalai Chemicals

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Thirumalai Chemicals Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain fundamental indicators, Thirumalai Chemicals disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NMDC and Thirumalai Chemicals

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

The idea behind NMDC Limited and Thirumalai Chemicals 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.