Correlation Between NMDC Steel and Steel Authority

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

Diversification Opportunities for NMDC Steel and Steel Authority

0.85
  Correlation Coefficient

Very poor diversification

The 3 months correlation between NMDC and Steel is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding NMDC Steel Limited and Steel Authority of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steel Authority and NMDC Steel 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 NMDC Steel Limited are associated (or correlated) with Steel Authority. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Steel Authority has no effect on the direction of NMDC Steel i.e., NMDC Steel and Steel Authority go up and down completely randomly.

Pair Corralation between NMDC Steel and Steel Authority

Assuming the 90 days trading horizon NMDC Steel Limited is expected to generate 1.08 times more return on investment than Steel Authority. However, NMDC Steel is 1.08 times more volatile than Steel Authority of. It trades about 0.04 of its potential returns per unit of risk. Steel Authority of is currently generating about 0.03 per unit of risk. If you would invest  3,175  in NMDC Steel Limited on August 24, 2024 and sell it today you would earn a total of  1,304  from holding NMDC Steel Limited or generate 41.07% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy88.73%
ValuesDaily Returns

NMDC Steel Limited  vs.  Steel Authority of

 Performance 
       Timeline  
NMDC Steel Limited 

Risk-Adjusted Performance

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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 unsteady performance in the last few months, the Stock's forward indicators remain relatively invariable which may send shares a bit higher in December 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.
Steel Authority 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Steel Authority of 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 December 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

NMDC Steel and Steel Authority Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with NMDC Steel and Steel Authority

The main advantage of trading using opposite NMDC Steel and Steel Authority positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NMDC Steel position performs unexpectedly, Steel Authority 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 Steel Authority will offset losses from the drop in Steel Authority's long position.
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The idea behind NMDC Steel Limited and Steel Authority of 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..

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