Correlation Between NMDC Steel and Garuda Construction

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

Diversification Opportunities for NMDC Steel and Garuda Construction

0.6

Correlation Coefficient

NMDC Steel  Garuda Construction

Poor diversification

The 3 months correlation between NMDC and Garuda is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding NMDC Steel Limited and Garuda Construction Engineerin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Garuda Construction 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 Garuda Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Garuda Construction has no effect on the direction of NMDC Steel i.e., NMDC Steel and Garuda Construction go up and down completely randomly.

Pair Corralation between NMDC Steel and Garuda Construction

Assuming the 90 days trading horizon NMDC Steel Limited is expected to under-perform the Garuda Construction. But the stock apears to be less risky and, when comparing its historical volatility, NMDC Steel Limited is 2.19 times less risky than Garuda Construction. The stock trades about -0.08 of its potential returns per unit of risk. The Garuda Construction Engineering is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  10,636  in Garuda Construction Engineering on September 14, 2024 and sell it today you would lose (939.00) from holding Garuda Construction Engineering or give up 8.83% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	67.74%
Values	Daily Returns

NMDC Steel Limited  vs.  Garuda Construction Engineerin

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 latest fragile performance, the Stock's forward indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Garuda Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Garuda Construction Engineering has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with NMDC Steel and Garuda Construction

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

The idea behind NMDC Steel Limited and Garuda Construction Engineering 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.