Correlation Between MRF and UltraTech Cement

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

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

Diversification Opportunities for MRF and UltraTech Cement

0.56

Correlation Coefficient

MRF  UltraTech Cement

Very weak diversification

The 3 months correlation between MRF and UltraTech is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding MRF Limited and UltraTech Cement Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UltraTech Cement 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 UltraTech Cement. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UltraTech Cement has no effect on the direction of MRF i.e., MRF and UltraTech Cement go up and down completely randomly.

Pair Corralation between MRF and UltraTech Cement

Assuming the 90 days trading horizon MRF Limited is expected to under-perform the UltraTech Cement. But the stock apears to be less risky and, when comparing its historical volatility, MRF Limited is 1.51 times less risky than UltraTech Cement. The stock trades about -0.19 of its potential returns per unit of risk. The UltraTech Cement Limited is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,135,000  in UltraTech Cement Limited on December 30, 2024 and sell it today you would earn a total of  15,955  from holding UltraTech Cement Limited or generate 1.41% return on investment over 90 days.

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

MRF Limited  vs.  UltraTech Cement 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 weak 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.

UltraTech Cement

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in UltraTech Cement Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound primary indicators, UltraTech Cement is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with MRF and UltraTech Cement

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

The idea behind MRF Limited and UltraTech Cement 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.