Correlation Between MRF and Radico Khaitan

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

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

Diversification Opportunities for MRF and Radico Khaitan

-0.79

Correlation Coefficient

MRF  Radico Khaitan

Pay attention - limited upside

The 3 months correlation between MRF and Radico is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding MRF Limited and Radico Khaitan Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Radico Khaitan 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 Radico Khaitan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Radico Khaitan has no effect on the direction of MRF i.e., MRF and Radico Khaitan go up and down completely randomly.

Pair Corralation between MRF and Radico Khaitan

Assuming the 90 days trading horizon MRF Limited is expected to under-perform the Radico Khaitan. But the stock apears to be less risky and, when comparing its historical volatility, MRF Limited is 1.96 times less risky than Radico Khaitan. The stock trades about -0.03 of its potential returns per unit of risk. The Radico Khaitan Limited is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  197,500  in Radico Khaitan Limited on September 7, 2024 and sell it today you would earn a total of  38,785  from holding Radico Khaitan Limited or generate 19.64% return on investment over 90 days.

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

MRF Limited  vs.  Radico Khaitan 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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Radico Khaitan

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Radico Khaitan Limited are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak forward indicators, Radico Khaitan sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MRF and Radico Khaitan

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

The idea behind MRF Limited and Radico Khaitan 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.