Correlation Between NMDC and Jindal Steel

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

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

Diversification Opportunities for NMDC and Jindal Steel

0.06

Correlation Coefficient

NMDC  Jindal Steel

Significant diversification

The 3 months correlation between NMDC and Jindal is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding NMDC Limited and Jindal Steel Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jindal Steel Power and NMDC 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 NMDC Limited are associated (or correlated) with Jindal Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jindal Steel Power has no effect on the direction of NMDC i.e., NMDC and Jindal Steel go up and down completely randomly.

Pair Corralation between NMDC and Jindal Steel

Assuming the 90 days trading horizon NMDC Limited is expected to generate 1.2 times more return on investment than Jindal Steel. However, NMDC is 1.2 times more volatile than Jindal Steel Power. It trades about 0.08 of its potential returns per unit of risk. Jindal Steel Power is currently generating about -0.04 per unit of risk. If you would invest  21,466  in NMDC Limited on September 17, 2024 and sell it today you would earn a total of  1,907  from holding NMDC Limited or generate 8.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

NMDC Limited  vs.  Jindal Steel Power

NMDC Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NMDC Limited are ranked lower than 6 (%) 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 January 2025.

Jindal Steel Power

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with NMDC and Jindal Steel

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

The idea behind NMDC Limited and Jindal Steel Power 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.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.