Correlation Between Southern Petrochemicals and NMDC

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

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

Diversification Opportunities for Southern Petrochemicals and NMDC

0.2

Correlation Coefficient

Southern Petrochemicals  NMDC

Modest diversification

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

Pair Corralation between Southern Petrochemicals and NMDC

Assuming the 90 days trading horizon Southern Petrochemicals Industries is expected to under-perform the NMDC. But the stock apears to be less risky and, when comparing its historical volatility, Southern Petrochemicals Industries is 1.12 times less risky than NMDC. The stock trades about -0.11 of its potential returns per unit of risk. The NMDC Limited is currently generating about 0.0 of returns per unit of risk over similar time horizon. 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

Southern Petrochemicals Indust  vs.  NMDC Limited

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.

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.

Pair Trading with Southern Petrochemicals and NMDC

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

The idea behind Southern Petrochemicals Industries and NMDC 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.