Correlation Between MRF and KEC International

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

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

Diversification Opportunities for MRF and KEC International

0.47

Correlation Coefficient

MRF  KEC International

Very weak diversification

The 3 months correlation between MRF and KEC is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding MRF Limited and KEC International Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KEC International 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 KEC International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KEC International has no effect on the direction of MRF i.e., MRF and KEC International go up and down completely randomly.

Pair Corralation between MRF and KEC International

Assuming the 90 days trading horizon MRF Limited is expected to under-perform the KEC International. But the stock apears to be less risky and, when comparing its historical volatility, MRF Limited is 2.05 times less risky than KEC International. The stock trades about -0.02 of its potential returns per unit of risk. The KEC International Limited is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  64,914  in KEC International Limited on October 2, 2024 and sell it today you would earn a total of  55,006  from holding KEC International Limited or generate 84.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.12%
Values	Daily Returns

MRF Limited  vs.  KEC International 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.

KEC International

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KEC International Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, KEC International exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MRF and KEC International

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

The idea behind MRF Limited and KEC International 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.

Check out your portfolio center.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.