Correlation Between NMDC Steel and Life Insurance

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

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

Diversification Opportunities for NMDC Steel and Life Insurance

0.84

Correlation Coefficient

NMDC Steel  Life Insurance

Very poor diversification

The 3 months correlation between NMDC and Life is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding NMDC Steel Limited and Life Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Life Insurance and NMDC Steel 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 Steel Limited are associated (or correlated) with Life Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Life Insurance has no effect on the direction of NMDC Steel i.e., NMDC Steel and Life Insurance go up and down completely randomly.

Pair Corralation between NMDC Steel and Life Insurance

Assuming the 90 days trading horizon NMDC Steel Limited is expected to generate 1.3 times more return on investment than Life Insurance. However, NMDC Steel is 1.3 times more volatile than Life Insurance. It trades about -0.07 of its potential returns per unit of risk. Life Insurance is currently generating about -0.09 per unit of risk. If you would invest  5,263  in NMDC Steel Limited on September 12, 2024 and sell it today you would lose (484.00) from holding NMDC Steel Limited or give up 9.2% of portfolio value over 90 days.

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

NMDC Steel Limited  vs.  Life Insurance

NMDC Steel Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NMDC Steel Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest uncertain performance, the Stock's forward indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Life Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Life Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting 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 NMDC Steel and Life Insurance

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

The idea behind NMDC Steel Limited and Life Insurance 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.