Correlation Between SAL Steel and NMDC

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

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

Diversification Opportunities for SAL Steel and NMDC

0.26

Correlation Coefficient

SAL Steel  NMDC

Modest diversification

The 3 months correlation between SAL and NMDC is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding SAL Steel Limited and NMDC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMDC Limited and SAL 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 SAL Steel Limited 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 SAL Steel i.e., SAL Steel and NMDC go up and down completely randomly.

Pair Corralation between SAL Steel and NMDC

Assuming the 90 days trading horizon SAL Steel Limited is expected to under-perform the NMDC. In addition to that, SAL Steel is 1.79 times more volatile than NMDC Limited. It trades about -0.07 of its total potential returns per unit of risk. NMDC Limited is currently generating about 0.05 per unit of volatility. If you would invest  6,464  in NMDC Limited on December 28, 2024 and sell it today you would earn a total of  425.00  from holding NMDC Limited or generate 6.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

SAL Steel Limited  vs.  NMDC Limited

SAL Steel Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days SAL Steel Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

NMDC Limited

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NMDC Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, NMDC may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with SAL Steel and NMDC

The main advantage of trading using opposite SAL Steel and NMDC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SAL Steel 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 SAL Steel Limited 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.

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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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.