Correlation Between Vedanta and NMDC
Can any of the company-specific risk be diversified away by investing in both Vedanta 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 Vedanta and NMDC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vedanta Limited and NMDC Limited, you can compare the effects of market volatilities on Vedanta 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 Vedanta with a short position of NMDC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vedanta and NMDC.
Diversification Opportunities for Vedanta and NMDC
Poor diversification
The 3 months correlation between Vedanta and NMDC is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Vedanta Limited and NMDC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMDC Limited and Vedanta 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 Vedanta 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 Vedanta i.e., Vedanta and NMDC go up and down completely randomly.
Pair Corralation between Vedanta and NMDC
Assuming the 90 days trading horizon Vedanta Limited is expected to generate 0.92 times more return on investment than NMDC. However, Vedanta Limited is 1.09 times less risky than NMDC. It trades about -0.07 of its potential returns per unit of risk. NMDC Limited is currently generating about -0.13 per unit of risk. If you would invest 45,999 in Vedanta Limited on December 4, 2024 and sell it today you would lose (5,084) from holding Vedanta Limited or give up 11.05% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Vedanta Limited vs. NMDC Limited
Performance |
Timeline |
Vedanta Limited |
NMDC Limited |
Vedanta and NMDC Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Vedanta and NMDC
The main advantage of trading using opposite Vedanta and NMDC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vedanta 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.Vedanta vs. Alkali Metals Limited | Vedanta vs. LT Foods Limited | Vedanta vs. Embassy Office Parks | Vedanta vs. Reliance Home Finance |
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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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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