Correlation Between Welspun Corp and NMDC

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

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

Diversification Opportunities for Welspun Corp and NMDC

0.55

Correlation Coefficient

Welspun Corp  NMDC

Very weak diversification

The 3 months correlation between Welspun and NMDC is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Welspun Corp Limited and NMDC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMDC Limited and Welspun Corp 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 Welspun Corp 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 Welspun Corp i.e., Welspun Corp and NMDC go up and down completely randomly.

Pair Corralation between Welspun Corp and NMDC

Assuming the 90 days trading horizon Welspun Corp Limited is expected to generate 1.05 times more return on investment than NMDC. However, Welspun Corp is 1.05 times more volatile than NMDC Limited. It trades about 0.14 of its potential returns per unit of risk. NMDC Limited is currently generating about -0.06 per unit of risk. If you would invest  53,685  in Welspun Corp Limited on September 23, 2024 and sell it today you would earn a total of  23,950  from holding Welspun Corp Limited or generate 44.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.21%
Values	Daily Returns

Welspun Corp Limited  vs.  NMDC Limited

Welspun Corp Limited

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Welspun Corp Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Welspun Corp reported solid returns over the last few months and may actually be approaching a breakup point.

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 Welspun Corp and NMDC

The main advantage of trading using opposite Welspun Corp and NMDC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Welspun Corp 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 Welspun Corp 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.