Correlation Between GM Breweries and MRF

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

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

Diversification Opportunities for GM Breweries and MRF

0.92

Correlation Coefficient

GM Breweries  MRF

Almost no diversification

The 3 months correlation between GMBREW and MRF is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding GM Breweries Limited and MRF Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MRF Limited and GM Breweries 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 GM Breweries Limited 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 GM Breweries i.e., GM Breweries and MRF go up and down completely randomly.

Pair Corralation between GM Breweries and MRF

Assuming the 90 days trading horizon GM Breweries Limited is expected to under-perform the MRF. In addition to that, GM Breweries is 2.35 times more volatile than MRF Limited. It trades about -0.13 of its total potential returns per unit of risk. MRF Limited is currently generating about -0.23 per unit of volatility. If you would invest  12,524,800  in MRF Limited on November 29, 2024 and sell it today you would lose (1,804,400) from holding MRF Limited or give up 14.41% of portfolio value over 90 days.

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

GM Breweries Limited  vs.  MRF Limited

GM Breweries Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days GM Breweries Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

MRF Limited

Risk-Adjusted Performance

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 weak performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with GM Breweries and MRF

The main advantage of trading using opposite GM Breweries and MRF positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM Breweries 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 GM Breweries Limited 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.