Correlation Between NMDC Steel and Khaitan Chemicals

Can any of the company-specific risk be diversified away by investing in both NMDC Steel and Khaitan 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 Steel and Khaitan Chemicals 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 Khaitan Chemicals Fertilizers, you can compare the effects of market volatilities on NMDC Steel and Khaitan 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 Steel with a short position of Khaitan Chemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of NMDC Steel and Khaitan Chemicals.

Diversification Opportunities for NMDC Steel and Khaitan Chemicals

0.57

Correlation Coefficient

NMDC Steel  Khaitan Chemicals

Very weak diversification

The 3 months correlation between NMDC and Khaitan is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding NMDC Steel Limited and Khaitan Chemicals Fertilizers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Khaitan Chemicals 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 Khaitan Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Khaitan Chemicals has no effect on the direction of NMDC Steel i.e., NMDC Steel and Khaitan Chemicals go up and down completely randomly.

Pair Corralation between NMDC Steel and Khaitan Chemicals

Assuming the 90 days trading horizon NMDC Steel Limited is expected to generate 0.91 times more return on investment than Khaitan Chemicals. However, NMDC Steel Limited is 1.09 times less risky than Khaitan Chemicals. It trades about 0.04 of its potential returns per unit of risk. Khaitan Chemicals Fertilizers is currently generating about 0.02 per unit of risk. If you would invest  3,175  in NMDC Steel Limited on October 23, 2024 and sell it today you would earn a total of  1,040  from holding NMDC Steel Limited or generate 32.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.32%
Values	Daily Returns

NMDC Steel Limited  vs.  Khaitan Chemicals Fertilizers

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 relatively invariable forward indicators, NMDC Steel is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Khaitan Chemicals

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Khaitan Chemicals Fertilizers are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical indicators, Khaitan Chemicals is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with NMDC Steel and Khaitan Chemicals

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

The idea behind NMDC Steel Limited and Khaitan Chemicals Fertilizers 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 Transaction History module to view history of all your transactions and understand their impact on performance.