Correlation Between GM Breweries and Varun Beverages

Can any of the company-specific risk be diversified away by investing in both GM Breweries and Varun Beverages 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 Varun Beverages 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 Varun Beverages Limited, you can compare the effects of market volatilities on GM Breweries and Varun Beverages 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 Varun Beverages. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM Breweries and Varun Beverages.

Diversification Opportunities for GM Breweries and Varun Beverages

0.36

Correlation Coefficient

GM Breweries  Varun Beverages

Weak diversification

The 3 months correlation between GMBREW and Varun is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding GM Breweries Limited and Varun Beverages Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Varun Beverages 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 Varun Beverages. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Varun Beverages has no effect on the direction of GM Breweries i.e., GM Breweries and Varun Beverages go up and down completely randomly.

Pair Corralation between GM Breweries and Varun Beverages

Assuming the 90 days trading horizon GM Breweries Limited is expected to generate 1.12 times more return on investment than Varun Beverages. However, GM Breweries is 1.12 times more volatile than Varun Beverages Limited. It trades about 0.14 of its potential returns per unit of risk. Varun Beverages Limited is currently generating about -0.01 per unit of risk. If you would invest  77,275  in GM Breweries Limited on September 23, 2024 and sell it today you would earn a total of  3,845  from holding GM Breweries Limited or generate 4.98% return on investment over 90 days.

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

GM Breweries Limited  vs.  Varun Beverages Limited

GM Breweries Limited

Risk-Adjusted Performance

0 of 100

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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Varun Beverages

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Varun Beverages Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Varun Beverages is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with GM Breweries and Varun Beverages

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

The idea behind GM Breweries Limited and Varun Beverages 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.