Correlation Between MSP Steel and NMDC Steel

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

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

Diversification Opportunities for MSP Steel and NMDC Steel

0.23

Correlation Coefficient

MSP Steel  NMDC Steel

Modest diversification

The 3 months correlation between MSP and NMDC is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding MSP Steel Power 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 MSP 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 MSP Steel Power 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 MSP Steel i.e., MSP Steel and NMDC Steel go up and down completely randomly.

Pair Corralation between MSP Steel and NMDC Steel

Assuming the 90 days trading horizon MSP Steel Power is expected to under-perform the NMDC Steel. In addition to that, MSP Steel is 1.16 times more volatile than NMDC Steel Limited. It trades about -0.1 of its total potential returns per unit of risk. NMDC Steel Limited is currently generating about -0.01 per unit of volatility. If you would invest  4,281  in NMDC Steel Limited on April 7, 2025 and sell it today you would lose (232.00) from holding NMDC Steel Limited or give up 5.42% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

MSP Steel Power  vs.  NMDC Steel Limited

MSP Steel Power

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in MSP Steel Power are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, MSP Steel is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

NMDC Steel Limited

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NMDC Steel Limited are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain forward indicators, NMDC Steel reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MSP Steel and NMDC Steel

The main advantage of trading using opposite MSP Steel and NMDC Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MSP Steel 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.

The idea behind MSP Steel Power 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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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.