Correlation Between NMDC Steel and Tech Mahindra

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

Diversification Opportunities for NMDC Steel and Tech Mahindra

0.79

Correlation Coefficient

NMDC Steel  Tech Mahindra

Poor diversification

The 3 months correlation between NMDC and Tech is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding NMDC Steel Limited and Tech Mahindra Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tech Mahindra Limited 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 Tech Mahindra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tech Mahindra Limited has no effect on the direction of NMDC Steel i.e., NMDC Steel and Tech Mahindra go up and down completely randomly.

Pair Corralation between NMDC Steel and Tech Mahindra

Assuming the 90 days trading horizon NMDC Steel Limited is expected to under-perform the Tech Mahindra. In addition to that, NMDC Steel is 1.5 times more volatile than Tech Mahindra Limited. It trades about -0.19 of its total potential returns per unit of risk. Tech Mahindra Limited is currently generating about -0.15 per unit of volatility. If you would invest  174,950  in Tech Mahindra Limited on December 3, 2024 and sell it today you would lose (26,165) from holding Tech Mahindra Limited or give up 14.96% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

NMDC Steel Limited  vs.  Tech Mahindra Limited

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.

Tech Mahindra Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tech Mahindra Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with NMDC Steel and Tech Mahindra

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

The idea behind NMDC Steel Limited and Tech Mahindra Limited 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.