Correlation Between Coffee Day and Music Broadcast

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

By analyzing existing cross correlation between Coffee Day Enterprises and Music Broadcast Limited, you can compare the effects of market volatilities on Coffee Day and Music Broadcast 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 Coffee Day with a short position of Music Broadcast. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coffee Day and Music Broadcast.

Diversification Opportunities for Coffee Day and Music Broadcast

0.47

Correlation Coefficient

Coffee Day  Music Broadcast

Very weak diversification

The 3 months correlation between Coffee and Music is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Coffee Day Enterprises and Music Broadcast Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Music Broadcast and Coffee Day 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 Coffee Day Enterprises are associated (or correlated) with Music Broadcast. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Music Broadcast has no effect on the direction of Coffee Day i.e., Coffee Day and Music Broadcast go up and down completely randomly.

Pair Corralation between Coffee Day and Music Broadcast

Assuming the 90 days trading horizon Coffee Day Enterprises is expected to generate 1.29 times more return on investment than Music Broadcast. However, Coffee Day is 1.29 times more volatile than Music Broadcast Limited. It trades about -0.14 of its potential returns per unit of risk. Music Broadcast Limited is currently generating about -0.19 per unit of risk. If you would invest  2,780  in Coffee Day Enterprises on December 1, 2024 and sell it today you would lose (652.00) from holding Coffee Day Enterprises or give up 23.45% of portfolio value over 90 days.

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

Coffee Day Enterprises  vs.  Music Broadcast Limited

Coffee Day Enterprises

Risk-Adjusted Performance

Very Weak

Over the last 90 days Coffee Day Enterprises has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Music Broadcast

Risk-Adjusted Performance

Very Weak

Over the last 90 days Music Broadcast Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Coffee Day and Music Broadcast

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

The idea behind Coffee Day Enterprises and Music Broadcast 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.