Correlation Between Thirumalai Chemicals and NMDC

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

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

Diversification Opportunities for Thirumalai Chemicals and NMDC

-0.06

Correlation Coefficient

Thirumalai Chemicals  NMDC

Good diversification

The 3 months correlation between Thirumalai and NMDC is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Thirumalai Chemicals Limited and NMDC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMDC Limited and Thirumalai Chemicals 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 Thirumalai Chemicals Limited 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 Thirumalai Chemicals i.e., Thirumalai Chemicals and NMDC go up and down completely randomly.

Pair Corralation between Thirumalai Chemicals and NMDC

Assuming the 90 days trading horizon Thirumalai Chemicals Limited is expected to generate 1.19 times more return on investment than NMDC. However, Thirumalai Chemicals is 1.19 times more volatile than NMDC Limited. It trades about 0.1 of its potential returns per unit of risk. NMDC Limited is currently generating about 0.09 per unit of risk. If you would invest  33,000  in Thirumalai Chemicals Limited on September 4, 2024 and sell it today you would earn a total of  4,870  from holding Thirumalai Chemicals Limited or generate 14.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Thirumalai Chemicals Limited  vs.  NMDC Limited

Thirumalai Chemicals

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Thirumalai Chemicals Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain fundamental indicators, Thirumalai Chemicals disclosed solid returns over the last few months and may actually be approaching a breakup point.

NMDC Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NMDC Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, NMDC may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Thirumalai Chemicals and NMDC

The main advantage of trading using opposite Thirumalai Chemicals and NMDC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Thirumalai Chemicals 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 Thirumalai Chemicals Limited 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.