Correlation Between Kamat Hotels and Varun Beverages

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

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

Diversification Opportunities for Kamat Hotels and Varun Beverages

0.71

Correlation Coefficient

Kamat Hotels  Varun Beverages

Poor diversification

The 3 months correlation between Kamat and Varun is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Kamat Hotels 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 Kamat Hotels 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 Kamat Hotels 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 Kamat Hotels i.e., Kamat Hotels and Varun Beverages go up and down completely randomly.

Pair Corralation between Kamat Hotels and Varun Beverages

Assuming the 90 days trading horizon Kamat Hotels Limited is expected to under-perform the Varun Beverages. But the stock apears to be less risky and, when comparing its historical volatility, Kamat Hotels Limited is 3.91 times less risky than Varun Beverages. The stock trades about -0.02 of its potential returns per unit of risk. The Varun Beverages Limited is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  55,286  in Varun Beverages Limited on October 7, 2024 and sell it today you would earn a total of  9,934  from holding Varun Beverages Limited or generate 17.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.55%
Values	Daily Returns

Kamat Hotels Limited  vs.  Varun Beverages Limited

Kamat Hotels Limited

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kamat Hotels Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Kamat Hotels displayed solid returns over the last few months and may actually be approaching a breakup point.

Varun Beverages

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Varun Beverages Limited are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Varun Beverages exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kamat Hotels and Varun Beverages

The main advantage of trading using opposite Kamat Hotels and Varun Beverages positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kamat Hotels 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 Kamat Hotels 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.