Correlation Between NMDC Steel and Mangalore Chemicals

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

Diversification Opportunities for NMDC Steel and Mangalore Chemicals

-0.41

Correlation Coefficient

NMDC Steel  Mangalore Chemicals

Very good diversification

The 3 months correlation between NMDC and Mangalore is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding NMDC Steel Limited and Mangalore Chemicals Fertilizer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mangalore 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 Mangalore Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mangalore Chemicals has no effect on the direction of NMDC Steel i.e., NMDC Steel and Mangalore Chemicals go up and down completely randomly.

Pair Corralation between NMDC Steel and Mangalore Chemicals

Assuming the 90 days trading horizon NMDC Steel is expected to generate 1.47 times less return on investment than Mangalore Chemicals. In addition to that, NMDC Steel is 1.05 times more volatile than Mangalore Chemicals Fertilizers. It trades about 0.04 of its total potential returns per unit of risk. Mangalore Chemicals Fertilizers is currently generating about 0.06 per unit of volatility. If you would invest  8,586  in Mangalore Chemicals Fertilizers on September 19, 2024 and sell it today you would earn a total of  7,702  from holding Mangalore Chemicals Fertilizers or generate 89.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	92.59%
Values	Daily Returns

NMDC Steel Limited  vs.  Mangalore Chemicals Fertilizer

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 weak 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.

Mangalore Chemicals

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mangalore Chemicals Fertilizers are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Mangalore Chemicals exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NMDC Steel and Mangalore Chemicals

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

The idea behind NMDC Steel Limited and Mangalore 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.