Correlation Between Oriental Carbon and NMDC

Can any of the company-specific risk be diversified away by investing in both Oriental Carbon and NMDC 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 Oriental Carbon and NMDC into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Oriental Carbon Chemicals and NMDC Limited, you can compare the effects of market volatilities on Oriental Carbon and NMDC 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 Oriental Carbon with a short position of NMDC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Oriental Carbon and NMDC.

Diversification Opportunities for Oriental Carbon and NMDC

0.06

Correlation Coefficient

Oriental Carbon  NMDC

Significant diversification

The 3 months correlation between Oriental and NMDC is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Oriental Carbon Chemicals and NMDC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMDC Limited and Oriental Carbon 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 Oriental Carbon Chemicals are associated (or correlated) with NMDC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NMDC Limited has no effect on the direction of Oriental Carbon i.e., Oriental Carbon and NMDC go up and down completely randomly.

Pair Corralation between Oriental Carbon and NMDC

Assuming the 90 days trading horizon Oriental Carbon Chemicals is expected to under-perform the NMDC. In addition to that, Oriental Carbon is 1.92 times more volatile than NMDC Limited. It trades about -0.02 of its total potential returns per unit of risk. NMDC Limited is currently generating about 0.07 per unit of volatility. If you would invest  10,971  in NMDC Limited on September 19, 2024 and sell it today you would earn a total of  10,392  from holding NMDC Limited or generate 94.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Oriental Carbon Chemicals  vs.  NMDC Limited

Oriental Carbon Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Oriental Carbon Chemicals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Oriental Carbon is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

NMDC Limited

Risk-Adjusted Performance

1 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NMDC Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, NMDC is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Oriental Carbon and NMDC

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

The idea behind Oriental Carbon Chemicals and NMDC 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.

Check out your portfolio center.

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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.