Correlation Between NMDC and UFLEX

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

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

Diversification Opportunities for NMDC and UFLEX

-0.33

Correlation Coefficient

NMDC  UFLEX

Very good diversification

The 3 months correlation between NMDC and UFLEX is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding NMDC Limited and UFLEX Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UFLEX 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 UFLEX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UFLEX Limited has no effect on the direction of NMDC i.e., NMDC and UFLEX go up and down completely randomly.

Pair Corralation between NMDC and UFLEX

Assuming the 90 days trading horizon NMDC Limited is expected to generate 0.84 times more return on investment than UFLEX. However, NMDC Limited is 1.19 times less risky than UFLEX. It trades about 0.08 of its potential returns per unit of risk. UFLEX Limited is currently generating about 0.01 per unit of risk. If you would invest  11,388  in NMDC Limited on September 2, 2024 and sell it today you would earn a total of  11,619  from holding NMDC Limited or generate 102.03% return on investment over 90 days.

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

NMDC Limited  vs.  UFLEX 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.

UFLEX Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days UFLEX Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's essential indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with NMDC and UFLEX

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

The idea behind NMDC Limited and UFLEX 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.