Correlation Between NMDC Steel and Newgen Software

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

Diversification Opportunities for NMDC Steel and Newgen Software

-0.37

Correlation Coefficient

NMDC Steel  Newgen Software

Very good diversification

The 3 months correlation between NMDC and Newgen is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding NMDC Steel Limited and Newgen Software Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Newgen Software Tech 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 Newgen Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Newgen Software Tech has no effect on the direction of NMDC Steel i.e., NMDC Steel and Newgen Software go up and down completely randomly.

Pair Corralation between NMDC Steel and Newgen Software

Assuming the 90 days trading horizon NMDC Steel is expected to generate 6.3 times less return on investment than Newgen Software. But when comparing it to its historical volatility, NMDC Steel Limited is 2.1 times less risky than Newgen Software. It trades about 0.03 of its potential returns per unit of risk. Newgen Software Technologies is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  20,073  in Newgen Software Technologies on October 13, 2024 and sell it today you would earn a total of  142,587  from holding Newgen Software Technologies or generate 710.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.09%
Values	Daily Returns

NMDC Steel Limited  vs.  Newgen Software Technologies

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

Newgen Software Tech

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Newgen Software Technologies are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Newgen Software sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NMDC Steel and Newgen Software

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

The idea behind NMDC Steel Limited and Newgen Software Technologies 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.