Correlation Between NMDC and Southern Petrochemicals

Can any of the company-specific risk be diversified away by investing in both NMDC and Southern 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 Southern 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 Southern Petrochemicals Industries, you can compare the effects of market volatilities on NMDC and Southern 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 Southern Petrochemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of NMDC and Southern Petrochemicals.

Diversification Opportunities for NMDC and Southern Petrochemicals

0.2

Correlation Coefficient

NMDC  Southern Petrochemicals

Modest diversification

The 3 months correlation between NMDC and Southern is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding NMDC Limited and Southern Petrochemicals Indust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern 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 Southern Petrochemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern Petrochemicals has no effect on the direction of NMDC i.e., NMDC and Southern Petrochemicals go up and down completely randomly.

Pair Corralation between NMDC and Southern Petrochemicals

Assuming the 90 days trading horizon NMDC Limited is expected to generate 1.12 times more return on investment than Southern Petrochemicals. However, NMDC is 1.12 times more volatile than Southern Petrochemicals Industries. It trades about 0.0 of its potential returns per unit of risk. Southern Petrochemicals Industries is currently generating about -0.11 per unit of risk. If you would invest  21,539  in NMDC Limited on September 22, 2024 and sell it today you would lose (224.00) from holding NMDC Limited or give up 1.04% of portfolio value over 90 days.

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

NMDC Limited  vs.  Southern Petrochemicals Indust

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 comparatively stable basic indicators, NMDC is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Southern Petrochemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Southern Petrochemicals Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with NMDC and Southern Petrochemicals

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

The idea behind NMDC Limited and Southern Petrochemicals Industries 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.