Correlation Between Hindustan Foods and MRF

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

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

Diversification Opportunities for Hindustan Foods and MRF

0.56

Correlation Coefficient

Hindustan Foods  MRF

Very weak diversification

The 3 months correlation between Hindustan and MRF is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Hindustan Foods Limited and MRF Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MRF Limited and Hindustan Foods 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 Hindustan Foods 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 Hindustan Foods i.e., Hindustan Foods and MRF go up and down completely randomly.

Pair Corralation between Hindustan Foods and MRF

Assuming the 90 days trading horizon Hindustan Foods Limited is expected to generate 2.1 times more return on investment than MRF. However, Hindustan Foods is 2.1 times more volatile than MRF Limited. It trades about -0.01 of its potential returns per unit of risk. MRF Limited is currently generating about -0.1 per unit of risk. If you would invest  57,210  in Hindustan Foods Limited on August 31, 2024 and sell it today you would lose (1,770) from holding Hindustan Foods Limited or give up 3.09% of portfolio value over 90 days.

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

Hindustan Foods Limited  vs.  MRF Limited

Hindustan Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hindustan Foods Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, Hindustan Foods is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

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 Hindustan Foods and MRF

The main advantage of trading using opposite Hindustan Foods and MRF positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hindustan Foods 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 Hindustan Foods 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.