Correlation Between MRF and Varun Beverages

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

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

Diversification Opportunities for MRF and Varun Beverages

0.9

Correlation Coefficient

MRF  Varun Beverages

Almost no diversification

The 3 months correlation between MRF and Varun is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding MRF Limited and Varun Beverages Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Varun Beverages 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 Varun Beverages. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Varun Beverages has no effect on the direction of MRF i.e., MRF and Varun Beverages go up and down completely randomly.

Pair Corralation between MRF and Varun Beverages

Assuming the 90 days trading horizon MRF Limited is expected to generate 0.43 times more return on investment than Varun Beverages. However, MRF Limited is 2.3 times less risky than Varun Beverages. It trades about -0.19 of its potential returns per unit of risk. Varun Beverages Limited is currently generating about -0.09 per unit of risk. If you would invest  13,113,800  in MRF Limited on December 29, 2024 and sell it today you would lose (1,846,000) from holding MRF Limited or give up 14.08% of portfolio value over 90 days.

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

MRF Limited  vs.  Varun Beverages 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.

Varun Beverages

Risk-Adjusted Performance

Very Weak

Over the last 90 days Varun Beverages Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady 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.

Pair Trading with MRF and Varun Beverages

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

The idea behind MRF Limited and Varun Beverages 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.