Correlation Between NMDC and Kothari Petrochemicals

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

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

Diversification Opportunities for NMDC and Kothari Petrochemicals

-0.12

Correlation Coefficient

NMDC  Kothari Petrochemicals

Good diversification

The 3 months correlation between NMDC and Kothari is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding NMDC Limited and Kothari Petrochemicals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kothari Petrochemicals 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 Kothari Petrochemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kothari Petrochemicals has no effect on the direction of NMDC i.e., NMDC and Kothari Petrochemicals go up and down completely randomly.

Pair Corralation between NMDC and Kothari Petrochemicals

Assuming the 90 days trading horizon NMDC Limited is expected to generate 0.77 times more return on investment than Kothari Petrochemicals. However, NMDC Limited is 1.3 times less risky than Kothari Petrochemicals. It trades about 0.06 of its potential returns per unit of risk. Kothari Petrochemicals Limited is currently generating about -0.08 per unit of risk. If you would invest  22,402  in NMDC Limited on September 17, 2024 and sell it today you would earn a total of  971.00  from holding NMDC Limited or generate 4.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.62%
Values	Daily Returns

NMDC Limited  vs.  Kothari Petrochemicals Limited

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.

Kothari Petrochemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kothari Petrochemicals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Kothari Petrochemicals is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with NMDC and Kothari Petrochemicals

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

The idea behind NMDC Limited and Kothari Petrochemicals 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.