Correlation Between Electronics Mart and NMDC

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

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

Diversification Opportunities for Electronics Mart and NMDC

-0.09

Correlation Coefficient

Electronics Mart  NMDC

Good diversification

The 3 months correlation between Electronics and NMDC is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Electronics Mart India and NMDC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMDC Limited and Electronics Mart 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 Electronics Mart 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 Electronics Mart i.e., Electronics Mart and NMDC go up and down completely randomly.

Pair Corralation between Electronics Mart and NMDC

Assuming the 90 days trading horizon Electronics Mart India is expected to under-perform the NMDC. In addition to that, Electronics Mart is 1.26 times more volatile than NMDC Limited. It trades about -0.1 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  21,493  in NMDC Limited on August 31, 2024 and sell it today you would earn a total of  1,280  from holding NMDC Limited or generate 5.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Electronics Mart India  vs.  NMDC Limited

Electronics Mart India

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Electronics Mart India 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 basic indicators remain comparatively stable which may send shares a bit higher in December 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

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 Electronics Mart and NMDC

The main advantage of trading using opposite Electronics Mart and NMDC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Electronics Mart 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 Electronics Mart 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.