Correlation Between MRF and Life Insurance

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

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

Diversification Opportunities for MRF and Life Insurance

0.78

Correlation Coefficient

MRF  Life Insurance

Poor diversification

The 3 months correlation between MRF and Life is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding MRF Limited and Life Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Life Insurance 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 Life Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Life Insurance has no effect on the direction of MRF i.e., MRF and Life Insurance go up and down completely randomly.

Pair Corralation between MRF and Life Insurance

Assuming the 90 days trading horizon MRF Limited is expected to generate 0.74 times more return on investment than Life Insurance. However, MRF Limited is 1.36 times less risky than Life Insurance. It trades about -0.03 of its potential returns per unit of risk. Life Insurance is currently generating about -0.09 per unit of risk. If you would invest  13,595,900  in MRF Limited on September 12, 2024 and sell it today you would lose (350,100) from holding MRF Limited or give up 2.58% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

MRF Limited  vs.  Life Insurance

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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Life Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Life Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with MRF and Life Insurance

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

The idea behind MRF Limited and Life Insurance 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.