Correlation Between MRF and Interarch Building

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

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

Diversification Opportunities for MRF and Interarch Building

-0.23

Correlation Coefficient

MRF  Interarch Building

Very good diversification

The 3 months correlation between MRF and Interarch is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding MRF Limited and Interarch Building Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Interarch Building 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 Interarch Building. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Interarch Building has no effect on the direction of MRF i.e., MRF and Interarch Building go up and down completely randomly.

Pair Corralation between MRF and Interarch Building

Assuming the 90 days trading horizon MRF Limited is expected to under-perform the Interarch Building. But the stock apears to be less risky and, when comparing its historical volatility, MRF Limited is 3.84 times less risky than Interarch Building. The stock trades about -0.02 of its potential returns per unit of risk. The Interarch Building Products is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  128,100  in Interarch Building Products on October 5, 2024 and sell it today you would earn a total of  53,755  from holding Interarch Building Products or generate 41.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

MRF Limited  vs.  Interarch Building Products

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.

Interarch Building

Risk-Adjusted Performance

13 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Interarch Building Products are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Interarch Building reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MRF and Interarch Building

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

The idea behind MRF Limited and Interarch Building Products 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.