Correlation Between MRF and Kohinoor Foods

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

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

Diversification Opportunities for MRF and Kohinoor Foods

0.72

Correlation Coefficient

MRF  Kohinoor Foods

Poor diversification

The 3 months correlation between MRF and Kohinoor is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding MRF Limited and Kohinoor Foods Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kohinoor Foods 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 Kohinoor Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kohinoor Foods has no effect on the direction of MRF i.e., MRF and Kohinoor Foods go up and down completely randomly.

Pair Corralation between MRF and Kohinoor Foods

Assuming the 90 days trading horizon MRF Limited is expected to under-perform the Kohinoor Foods. But the stock apears to be less risky and, when comparing its historical volatility, MRF Limited is 5.95 times less risky than Kohinoor Foods. The stock trades about -0.25 of its potential returns per unit of risk. The Kohinoor Foods Limited is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  4,205  in Kohinoor Foods Limited on October 8, 2024 and sell it today you would earn a total of  94.00  from holding Kohinoor Foods Limited or generate 2.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.0%
Values	Daily Returns

MRF Limited  vs.  Kohinoor Foods 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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

Kohinoor Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kohinoor Foods Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Kohinoor Foods is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with MRF and Kohinoor Foods

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

The idea behind MRF Limited and Kohinoor Foods 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.