Correlation Between NMDC Steel and Zenith Steel

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

Diversification Opportunities for NMDC Steel and Zenith Steel

0.75

Correlation Coefficient

NMDC Steel  Zenith Steel

Poor diversification

The 3 months correlation between NMDC and Zenith is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding NMDC Steel Limited and Zenith Steel Pipes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zenith Steel Pipes 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 Zenith Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zenith Steel Pipes has no effect on the direction of NMDC Steel i.e., NMDC Steel and Zenith Steel go up and down completely randomly.

Pair Corralation between NMDC Steel and Zenith Steel

Assuming the 90 days trading horizon NMDC Steel Limited is expected to generate 1.03 times more return on investment than Zenith Steel. However, NMDC Steel is 1.03 times more volatile than Zenith Steel Pipes. It trades about -0.07 of its potential returns per unit of risk. Zenith Steel Pipes is currently generating about -0.16 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 (488.00) from holding NMDC Steel Limited or give up 9.27% of portfolio value over 90 days.

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

NMDC Steel Limited  vs.  Zenith Steel Pipes

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.

Zenith Steel Pipes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zenith Steel Pipes 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 Steel and Zenith Steel

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

The idea behind NMDC Steel Limited and Zenith Steel Pipes 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.