Correlation Between MRF and Federal Bank

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

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

Diversification Opportunities for MRF and Federal Bank

0.75

Correlation Coefficient

MRF  Federal Bank

Poor diversification

The 3 months correlation between MRF and Federal is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding MRF Limited and The Federal Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Bank 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 Federal Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Bank has no effect on the direction of MRF i.e., MRF and Federal Bank go up and down completely randomly.

Pair Corralation between MRF and Federal Bank

Assuming the 90 days trading horizon MRF Limited is expected to under-perform the Federal Bank. But the stock apears to be less risky and, when comparing its historical volatility, MRF Limited is 1.38 times less risky than Federal Bank. The stock trades about -0.17 of its potential returns per unit of risk. The The Federal Bank is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  19,768  in The Federal Bank on December 25, 2024 and sell it today you would lose (188.00) from holding The Federal Bank or give up 0.95% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

MRF Limited  vs.  The Federal Bank

MRF Limited

Risk-Adjusted Performance

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 unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Federal Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Federal Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental drivers, Federal Bank is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with MRF and Federal Bank

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

The idea behind MRF Limited and The Federal Bank 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.