Correlation Between Mughal Iron and National Foods

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

Diversification Opportunities for Mughal Iron and National Foods

0.18
  Correlation Coefficient

Average diversification

The 3 months correlation between Mughal and National is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Mughal Iron Steel and National Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Foods and Mughal Iron 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 Mughal Iron Steel are associated (or correlated) with National Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Foods has no effect on the direction of Mughal Iron i.e., Mughal Iron and National Foods go up and down completely randomly.

Pair Corralation between Mughal Iron and National Foods

Assuming the 90 days trading horizon Mughal Iron Steel is expected to under-perform the National Foods. In addition to that, Mughal Iron is 2.4 times more volatile than National Foods. It trades about -0.24 of its total potential returns per unit of risk. National Foods is currently generating about 0.13 per unit of volatility. If you would invest  16,814  in National Foods on August 26, 2024 and sell it today you would earn a total of  564.00  from holding National Foods or generate 3.35% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Mughal Iron Steel  vs.  National Foods

 Performance 
       Timeline  
Mughal Iron Steel 

Risk-Adjusted Performance

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Strong
Very Weak
Over the last 90 days Mughal Iron Steel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical indicators remain somewhat strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.
National Foods 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days National Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, National Foods is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Mughal Iron and National Foods Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Mughal Iron and National Foods

The main advantage of trading using opposite Mughal Iron and National Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mughal Iron position performs unexpectedly, National Foods 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 National Foods will offset losses from the drop in National Foods' long position.
The idea behind Mughal Iron Steel and National Foods 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.
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.

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