Correlation Between IG Petrochemicals and NMDC

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

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

Diversification Opportunities for IG Petrochemicals and NMDC

0.43

Correlation Coefficient

IG Petrochemicals  NMDC

Very weak diversification

The 3 months correlation between IGPL and NMDC is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding IG Petrochemicals Limited and NMDC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMDC Limited and IG Petrochemicals 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 IG Petrochemicals 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 IG Petrochemicals i.e., IG Petrochemicals and NMDC go up and down completely randomly.

Pair Corralation between IG Petrochemicals and NMDC

Assuming the 90 days trading horizon IG Petrochemicals is expected to generate 3.23 times less return on investment than NMDC. In addition to that, IG Petrochemicals is 1.04 times more volatile than NMDC Limited. It trades about 0.02 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  11,164  in NMDC Limited on September 26, 2024 and sell it today you would earn a total of  10,080  from holding NMDC Limited or generate 90.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.79%
Values	Daily Returns

IG Petrochemicals Limited  vs.  NMDC Limited

IG Petrochemicals

Risk-Adjusted Performance

0 of 100

Very Weak

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

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 latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with IG Petrochemicals and NMDC

The main advantage of trading using opposite IG Petrochemicals and NMDC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IG Petrochemicals 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 IG Petrochemicals 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 Transaction History module to view history of all your transactions and understand their impact on performance.