Correlation Between UPL and NMDC

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

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

Diversification Opportunities for UPL and NMDC

0.23

Correlation Coefficient

UPL  NMDC

Modest diversification

The 3 months correlation between UPL and NMDC is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding UPL Limited and NMDC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMDC Limited and UPL 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 UPL 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 UPL i.e., UPL and NMDC go up and down completely randomly.

Pair Corralation between UPL and NMDC

Assuming the 90 days trading horizon UPL Limited is expected to under-perform the NMDC. But the stock apears to be less risky and, when comparing its historical volatility, UPL Limited is 1.48 times less risky than NMDC. The stock trades about -0.27 of its potential returns per unit of risk. The NMDC Limited is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  22,077  in NMDC Limited on September 23, 2024 and sell it today you would lose (762.00) from holding NMDC Limited or give up 3.45% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

UPL Limited  vs.  NMDC Limited

UPL Limited

Risk-Adjusted Performance

0 of 100

Very Weak

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

NMDC Limited

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with UPL and NMDC

The main advantage of trading using opposite UPL and NMDC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if UPL 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 UPL 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.