Correlation Between VA Tech and NMDC

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

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

Diversification Opportunities for VA Tech and NMDC

0.46

Correlation Coefficient

VA Tech  NMDC

Very weak diversification

The 3 months correlation between WABAG and NMDC is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding VA Tech Wabag and NMDC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMDC Limited and VA Tech 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 VA Tech Wabag 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 VA Tech i.e., VA Tech and NMDC go up and down completely randomly.

Pair Corralation between VA Tech and NMDC

Assuming the 90 days trading horizon VA Tech Wabag is expected to generate 1.33 times more return on investment than NMDC. However, VA Tech is 1.33 times more volatile than NMDC Limited. It trades about 0.16 of its potential returns per unit of risk. NMDC Limited is currently generating about -0.04 per unit of risk. If you would invest  99,360  in VA Tech Wabag on September 1, 2024 and sell it today you would earn a total of  80,130  from holding VA Tech Wabag or generate 80.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.2%
Values	Daily Returns

VA Tech Wabag  vs.  NMDC Limited

VA Tech Wabag

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in VA Tech Wabag are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental drivers, VA Tech displayed solid returns over the last few months and may actually be approaching a breakup point.

NMDC Limited

Risk-Adjusted Performance

4 of 100

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 December 2024.

Pair Trading with VA Tech and NMDC

The main advantage of trading using opposite VA Tech and NMDC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VA Tech 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 VA Tech Wabag 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..