Correlation Between HEG and MRF

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

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

Diversification Opportunities for HEG and MRF

0.75

Correlation Coefficient

HEG  MRF

Poor diversification

The 3 months correlation between HEG and MRF is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding HEG Limited and MRF Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MRF Limited and HEG 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 HEG 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 HEG i.e., HEG and MRF go up and down completely randomly.

Pair Corralation between HEG and MRF

Assuming the 90 days trading horizon HEG Limited is expected to generate 160.57 times more return on investment than MRF. However, HEG is 160.57 times more volatile than MRF Limited. It trades about 0.19 of its potential returns per unit of risk. MRF Limited is currently generating about 0.05 per unit of risk. If you would invest  16,800  in HEG Limited on October 21, 2024 and sell it today you would earn a total of  26,215  from holding HEG Limited or generate 156.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.46%
Values	Daily Returns

HEG Limited  vs.  MRF Limited

HEG Limited

Risk-Adjusted Performance

0 of 100

Very Weak

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

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 weak 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 HEG and MRF

The main advantage of trading using opposite HEG and MRF positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HEG 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 HEG 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.

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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.