Correlation Between NMDC Steel and SIL Investments

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

Diversification Opportunities for NMDC Steel and SIL Investments

-0.72

Correlation Coefficient

NMDC Steel  SIL Investments

Pay attention - limited upside

The 3 months correlation between NMDC and SIL is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding NMDC Steel Limited and SIL Investments Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SIL Investments 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 SIL Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SIL Investments has no effect on the direction of NMDC Steel i.e., NMDC Steel and SIL Investments go up and down completely randomly.

Pair Corralation between NMDC Steel and SIL Investments

Assuming the 90 days trading horizon NMDC Steel Limited is expected to under-perform the SIL Investments. But the stock apears to be less risky and, when comparing its historical volatility, NMDC Steel Limited is 2.21 times less risky than SIL Investments. The stock trades about -0.07 of its potential returns per unit of risk. The SIL Investments Limited is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  57,320  in SIL Investments Limited on September 12, 2024 and sell it today you would earn a total of  15,495  from holding SIL Investments Limited or generate 27.03% return on investment over 90 days.

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

NMDC Steel Limited  vs.  SIL Investments Limited

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.

SIL Investments

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SIL Investments Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting forward indicators, SIL Investments sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NMDC Steel and SIL Investments

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

The idea behind NMDC Steel Limited and SIL Investments 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.