Correlation Between Sapphire Foods and NMDC

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

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

Diversification Opportunities for Sapphire Foods and NMDC

0.04

Correlation Coefficient

Sapphire Foods  NMDC

Significant diversification

The 3 months correlation between Sapphire and NMDC is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Sapphire Foods India and NMDC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMDC Limited and Sapphire Foods 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 Sapphire Foods India 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 Sapphire Foods i.e., Sapphire Foods and NMDC go up and down completely randomly.

Pair Corralation between Sapphire Foods and NMDC

Assuming the 90 days trading horizon Sapphire Foods is expected to generate 1.47 times less return on investment than NMDC. In addition to that, Sapphire Foods is 1.07 times more volatile than NMDC Limited. It trades about 0.04 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  3,298  in NMDC Limited on October 4, 2024 and sell it today you would earn a total of  3,294  from holding NMDC Limited or generate 99.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.73%
Values	Daily Returns

Sapphire Foods India  vs.  NMDC Limited

Sapphire Foods India

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sapphire Foods India has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward indicators, Sapphire Foods is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

NMDC Limited

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NMDC Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, NMDC unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sapphire Foods and NMDC

The main advantage of trading using opposite Sapphire Foods and NMDC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sapphire Foods 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 Sapphire Foods India 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.