Correlation Between MRF and Paramount Communications

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

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

Diversification Opportunities for MRF and Paramount Communications

0.38

Correlation Coefficient

MRF  Paramount Communications

Weak diversification

The 3 months correlation between MRF and Paramount is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding MRF Limited and Paramount Communications Limit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Paramount Communications 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 Paramount Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Paramount Communications has no effect on the direction of MRF i.e., MRF and Paramount Communications go up and down completely randomly.

Pair Corralation between MRF and Paramount Communications

Assuming the 90 days trading horizon MRF Limited is expected to generate 0.42 times more return on investment than Paramount Communications. However, MRF Limited is 2.38 times less risky than Paramount Communications. It trades about -0.07 of its potential returns per unit of risk. Paramount Communications Limited is currently generating about -0.04 per unit of risk. If you would invest  14,366,400  in MRF Limited on October 24, 2024 and sell it today you would lose (3,156,700) from holding MRF Limited or give up 21.97% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

MRF Limited  vs.  Paramount Communications Limit

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 latest weak 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.

Paramount Communications

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Paramount Communications Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain essential indicators, Paramount Communications may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with MRF and Paramount Communications

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

The idea behind MRF Limited and Paramount Communications 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.