Correlation Between MRF and Tata Communications

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

Diversification Opportunities for MRF and Tata Communications

0.43

Correlation Coefficient

MRF  Tata Communications

Very weak diversification

The 3 months correlation between MRF and Tata is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding MRF Limited and Tata Communications Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tata 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 Tata Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tata Communications has no effect on the direction of MRF i.e., MRF and Tata Communications go up and down completely randomly.

Pair Corralation between MRF and Tata Communications

Assuming the 90 days trading horizon MRF Limited is expected to generate 0.7 times more return on investment than Tata Communications. However, MRF Limited is 1.43 times less risky than Tata Communications. It trades about 0.09 of its potential returns per unit of risk. Tata Communications Limited is currently generating about -0.11 per unit of risk. If you would invest  12,684,100  in MRF Limited on October 5, 2024 and sell it today you would earn a total of  237,100  from holding MRF Limited or generate 1.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

MRF Limited  vs.  Tata Communications 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 recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Tata Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tata Communications Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with MRF and Tata Communications

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

The idea behind MRF Limited and Tata 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.