Correlation Between MRF and Engineers India

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

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

Diversification Opportunities for MRF and Engineers India

0.77

Correlation Coefficient

MRF  Engineers India

Poor diversification

The 3 months correlation between MRF and Engineers is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding MRF Limited and Engineers India Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Engineers India 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 Engineers India. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Engineers India has no effect on the direction of MRF i.e., MRF and Engineers India go up and down completely randomly.

Pair Corralation between MRF and Engineers India

Assuming the 90 days trading horizon MRF Limited is expected to generate 0.43 times more return on investment than Engineers India. However, MRF Limited is 2.33 times less risky than Engineers India. It trades about -0.09 of its potential returns per unit of risk. Engineers India Limited is currently generating about -0.09 per unit of risk. If you would invest  13,723,100  in MRF Limited on September 23, 2024 and sell it today you would lose (917,300) from holding MRF Limited or give up 6.68% of portfolio value over 90 days.

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

MRF Limited  vs.  Engineers India 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 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.

Engineers India

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Engineers India Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with MRF and Engineers India

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

The idea behind MRF Limited and Engineers India 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.