Correlation Between MRF and Elin Electronics

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

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

Diversification Opportunities for MRF and Elin Electronics

0.4

Correlation Coefficient

MRF  Elin Electronics

Very weak diversification

The 3 months correlation between MRF and Elin is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding MRF Limited and Elin Electronics Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elin Electronics and MRF 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 MRF Limited are associated (or correlated) with Elin Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elin Electronics has no effect on the direction of MRF i.e., MRF and Elin Electronics go up and down completely randomly.

Pair Corralation between MRF and Elin Electronics

Assuming the 90 days trading horizon MRF Limited is expected to generate 0.44 times more return on investment than Elin Electronics. However, MRF Limited is 2.27 times less risky than Elin Electronics. It trades about 0.09 of its potential returns per unit of risk. Elin Electronics Limited is currently generating about -0.18 per unit of risk. If you would invest  12,684,100  in MRF Limited on October 5, 2024 and sell it today you would earn a total of  237,100  from holding MRF Limited or generate 1.87% return on investment over 90 days.

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

MRF Limited  vs.  Elin Electronics Limited

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 rather sound technical and fundamental indicators, MRF is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Elin Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Elin Electronics Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Elin Electronics is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with MRF and Elin Electronics

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

The idea behind MRF Limited and Elin Electronics 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.