Correlation Between Cantabil Retail and MRF

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

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

Diversification Opportunities for Cantabil Retail and MRF

0.81

Correlation Coefficient

Cantabil Retail  MRF

Very poor diversification

The 3 months correlation between Cantabil and MRF is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Cantabil Retail India and MRF Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MRF Limited and Cantabil Retail 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 Cantabil Retail India are associated (or correlated) with MRF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MRF Limited has no effect on the direction of Cantabil Retail i.e., Cantabil Retail and MRF go up and down completely randomly.

Pair Corralation between Cantabil Retail and MRF

Assuming the 90 days trading horizon Cantabil Retail India is expected to generate 1.95 times more return on investment than MRF. However, Cantabil Retail is 1.95 times more volatile than MRF Limited. It trades about -0.02 of its potential returns per unit of risk. MRF Limited is currently generating about -0.11 per unit of risk. If you would invest  24,019  in Cantabil Retail India on September 5, 2024 and sell it today you would lose (1,008) from holding Cantabil Retail India or give up 4.2% of portfolio value over 90 days.

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

Cantabil Retail India  vs.  MRF Limited

Cantabil Retail India

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cantabil Retail India has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental drivers, Cantabil Retail is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

MRF Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MRF Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Cantabil Retail and MRF

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

The idea behind Cantabil Retail India and MRF 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.