Correlation Between Lotus Eye and NMDC Steel

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Can any of the company-specific risk be diversified away by investing in both Lotus Eye 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 Lotus Eye and NMDC Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lotus Eye Hospital and NMDC Steel Limited, you can compare the effects of market volatilities on Lotus Eye 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 Lotus Eye with a short position of NMDC Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lotus Eye and NMDC Steel.

Diversification Opportunities for Lotus Eye and NMDC Steel

0.88
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Lotus and NMDC is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Lotus Eye Hospital 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 Lotus Eye 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 Lotus Eye Hospital 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 Lotus Eye i.e., Lotus Eye and NMDC Steel go up and down completely randomly.

Pair Corralation between Lotus Eye and NMDC Steel

Assuming the 90 days trading horizon Lotus Eye Hospital is expected to generate 1.22 times more return on investment than NMDC Steel. However, Lotus Eye is 1.22 times more volatile than NMDC Steel Limited. It trades about 0.17 of its potential returns per unit of risk. NMDC Steel Limited is currently generating about -0.04 per unit of risk. If you would invest  6,825  in Lotus Eye Hospital on September 3, 2024 and sell it today you would earn a total of  558.00  from holding Lotus Eye Hospital or generate 8.18% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Lotus Eye Hospital  vs.  NMDC Steel Limited

 Performance 
       Timeline  
Lotus Eye Hospital 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Lotus Eye Hospital has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Lotus Eye is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.
NMDC Steel Limited 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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 unfluctuating 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.

Lotus Eye and NMDC Steel Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Lotus Eye and NMDC Steel

The main advantage of trading using opposite Lotus Eye and NMDC Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lotus Eye 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.
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The idea behind Lotus Eye Hospital 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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Check out your portfolio center.
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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.

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