Correlation Between SIL Investments and NMDC Steel

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

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

Diversification Opportunities for SIL Investments and NMDC Steel

-0.74

Correlation Coefficient

SIL Investments  NMDC Steel

Pay attention - limited upside

The 3 months correlation between SIL and NMDC is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding SIL Investments Limited and NMDC Steel Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMDC Steel Limited and SIL Investments 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 SIL Investments Limited are associated (or correlated) with NMDC Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NMDC Steel Limited has no effect on the direction of SIL Investments i.e., SIL Investments and NMDC Steel go up and down completely randomly.

Pair Corralation between SIL Investments and NMDC Steel

Assuming the 90 days trading horizon SIL Investments Limited is expected to generate 1.17 times more return on investment than NMDC Steel. However, SIL Investments is 1.17 times more volatile than NMDC Steel Limited. It trades about 0.08 of its potential returns per unit of risk. NMDC Steel Limited is currently generating about 0.02 per unit of risk. If you would invest  39,647  in SIL Investments Limited on September 4, 2024 and sell it today you would earn a total of  30,683  from holding SIL Investments Limited or generate 77.39% return on investment over 90 days.

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

SIL Investments Limited  vs.  NMDC Steel Limited

SIL Investments

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SIL Investments Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady forward indicators, SIL Investments sustained solid returns over the last few months and may actually be approaching a breakup point.

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 weak performance in the last few months, the Stock's forward indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with SIL Investments and NMDC Steel

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

The idea behind SIL Investments Limited and NMDC Steel 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.