Correlation Between NMDC Steel and Dhampur Bio

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

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

Diversification Opportunities for NMDC Steel and Dhampur Bio

0.84

Correlation Coefficient

NMDC Steel  Dhampur Bio

Very poor diversification

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

Pair Corralation between NMDC Steel and Dhampur Bio

Assuming the 90 days trading horizon NMDC Steel Limited is expected to generate 1.15 times more return on investment than Dhampur Bio. However, NMDC Steel is 1.15 times more volatile than Dhampur Bio Organics. It trades about 0.0 of its potential returns per unit of risk. Dhampur Bio Organics is currently generating about -0.02 per unit of risk. If you would invest  4,990  in NMDC Steel Limited on September 20, 2024 and sell it today you would lose (582.00) from holding NMDC Steel Limited or give up 11.66% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.18%
Values	Daily Returns

NMDC Steel Limited  vs.  Dhampur Bio Organics

NMDC Steel Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NMDC Steel Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's forward indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Dhampur Bio Organics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dhampur Bio Organics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with NMDC Steel and Dhampur Bio

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

The idea behind NMDC Steel Limited and Dhampur Bio Organics 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.