Correlation Between MRF and Summit Securities

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

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

Diversification Opportunities for MRF and Summit Securities

0.94

Correlation Coefficient

MRF  Summit Securities

Almost no diversification

The 3 months correlation between MRF and Summit is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding MRF Limited and Summit Securities Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Summit Securities 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 Summit Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Summit Securities has no effect on the direction of MRF i.e., MRF and Summit Securities go up and down completely randomly.

Pair Corralation between MRF and Summit Securities

Assuming the 90 days trading horizon MRF Limited is expected to generate 0.33 times more return on investment than Summit Securities. However, MRF Limited is 3.03 times less risky than Summit Securities. It trades about -0.25 of its potential returns per unit of risk. Summit Securities Limited is currently generating about -0.35 per unit of risk. If you would invest  12,535,600  in MRF Limited on December 2, 2024 and sell it today you would lose (1,998,200) from holding MRF Limited or give up 15.94% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

MRF Limited  vs.  Summit Securities 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 conflicting performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Summit Securities

Risk-Adjusted Performance

Very Weak

Over the last 90 days Summit Securities Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with MRF and Summit Securities

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

The idea behind MRF Limited and Summit Securities 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.