Correlation Between MRF and LT Foods

Can any of the company-specific risk be diversified away by investing in both MRF and LT 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 LT 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 LT Foods Limited, you can compare the effects of market volatilities on MRF and LT 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 LT Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of MRF and LT Foods.

Diversification Opportunities for MRF and LT Foods

0.47

Correlation Coefficient

MRF  LT Foods

Very weak diversification

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

Pair Corralation between MRF and LT Foods

Assuming the 90 days trading horizon MRF is expected to generate 11.96 times less return on investment than LT Foods. But when comparing it to its historical volatility, MRF Limited is 2.28 times less risky than LT Foods. It trades about 0.02 of its potential returns per unit of risk. LT Foods Limited is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  16,075  in LT Foods Limited on November 20, 2024 and sell it today you would earn a total of  21,585  from holding LT Foods Limited or generate 134.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	83.81%
Values	Daily Returns

MRF Limited  vs.  LT Foods Limited

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 latest inconsistent performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

LT Foods Limited

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in LT Foods Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, LT Foods unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MRF and LT Foods

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

The idea behind MRF Limited and LT 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 Anywhere module to track or share privately all of your investments from the convenience of any device.