Correlation Between NIFTY SUMER and NBCC

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

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

Diversification Opportunities for NIFTY SUMER and NBCC

0.83

Correlation Coefficient

NIFTY SUMER  NBCC

Very poor diversification

The 3 months correlation between NIFTY and NBCC is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding NIFTY SUMER DURABLES and NBCC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NBCC Limited and NIFTY SUMER 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 NIFTY SUMER DURABLES are associated (or correlated) with NBCC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NBCC Limited has no effect on the direction of NIFTY SUMER i.e., NIFTY SUMER and NBCC go up and down completely randomly.

Pair Corralation between NIFTY SUMER and NBCC

Assuming the 90 days trading horizon NIFTY SUMER is expected to generate 1.6 times less return on investment than NBCC. But when comparing it to its historical volatility, NIFTY SUMER DURABLES is 2.24 times less risky than NBCC. It trades about 0.2 of its potential returns per unit of risk. NBCC Limited is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  8,913  in NBCC Limited on September 23, 2024 and sell it today you would earn a total of  530.00  from holding NBCC Limited or generate 5.95% return on investment over 90 days.

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

NIFTY SUMER DURABLES  vs.  NBCC Limited

Pair Trading with NIFTY SUMER and NBCC

The main advantage of trading using opposite NIFTY SUMER and NBCC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NIFTY SUMER position performs unexpectedly, NBCC 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 NBCC will offset losses from the drop in NBCC's long position.

The idea behind NIFTY SUMER DURABLES and NBCC 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.