Correlation Between NMDC Steel and Electronics Mart

Can any of the company-specific risk be diversified away by investing in both NMDC Steel and Electronics Mart 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 Electronics Mart 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 Electronics Mart India, you can compare the effects of market volatilities on NMDC Steel and Electronics Mart 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 Electronics Mart. Check out your portfolio center. Please also check ongoing floating volatility patterns of NMDC Steel and Electronics Mart.

Diversification Opportunities for NMDC Steel and Electronics Mart

0.95

Correlation Coefficient

NMDC Steel  Electronics Mart

Almost no diversification

The 3 months correlation between NMDC and Electronics is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding NMDC Steel Limited and Electronics Mart India in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electronics Mart India 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 Electronics Mart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electronics Mart India has no effect on the direction of NMDC Steel i.e., NMDC Steel and Electronics Mart go up and down completely randomly.

Pair Corralation between NMDC Steel and Electronics Mart

Assuming the 90 days trading horizon NMDC Steel Limited is expected to generate 1.1 times more return on investment than Electronics Mart. However, NMDC Steel is 1.1 times more volatile than Electronics Mart India. It trades about -0.14 of its potential returns per unit of risk. Electronics Mart India is currently generating about -0.2 per unit of risk. If you would invest  4,464  in NMDC Steel Limited on December 26, 2024 and sell it today you would lose (1,059) from holding NMDC Steel Limited or give up 23.72% of portfolio value over 90 days.

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

NMDC Steel Limited  vs.  Electronics Mart India

NMDC Steel Limited

Risk-Adjusted Performance

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 April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Electronics Mart India

Risk-Adjusted Performance

Very Weak

Over the last 90 days Electronics Mart India has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with NMDC Steel and Electronics Mart

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

The idea behind NMDC Steel Limited and Electronics Mart India 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.