Correlation Between BF Investment and Maithan Alloys

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

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

Diversification Opportunities for BF Investment and Maithan Alloys

0.06

Correlation Coefficient

BF Investment  Maithan Alloys

Significant diversification

The 3 months correlation between BFINVEST and Maithan is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding BF Investment Limited and Maithan Alloys Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Maithan Alloys and BF Investment 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 BF Investment Limited are associated (or correlated) with Maithan Alloys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Maithan Alloys has no effect on the direction of BF Investment i.e., BF Investment and Maithan Alloys go up and down completely randomly.

Pair Corralation between BF Investment and Maithan Alloys

Assuming the 90 days trading horizon BF Investment Limited is expected to under-perform the Maithan Alloys. But the stock apears to be less risky and, when comparing its historical volatility, BF Investment Limited is 1.2 times less risky than Maithan Alloys. The stock trades about -0.16 of its potential returns per unit of risk. The Maithan Alloys Limited is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  107,610  in Maithan Alloys Limited on October 3, 2024 and sell it today you would earn a total of  4,305  from holding Maithan Alloys Limited or generate 4.0% return on investment over 90 days.

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

BF Investment Limited  vs.  Maithan Alloys Limited

BF Investment Limited

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BF Investment Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, BF Investment unveiled solid returns over the last few months and may actually be approaching a breakup point.

Maithan Alloys

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Maithan Alloys Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Maithan Alloys is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with BF Investment and Maithan Alloys

The main advantage of trading using opposite BF Investment and Maithan Alloys positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BF Investment position performs unexpectedly, Maithan Alloys 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 Maithan Alloys will offset losses from the drop in Maithan Alloys' long position.

The idea behind BF Investment Limited and Maithan Alloys 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.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.