Correlation Between Muthoot Finance and Arvind

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

By analyzing existing cross correlation between Muthoot Finance Limited and Arvind Limited, you can compare the effects of market volatilities on Muthoot Finance and Arvind 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 Muthoot Finance with a short position of Arvind. Check out your portfolio center. Please also check ongoing floating volatility patterns of Muthoot Finance and Arvind.

Diversification Opportunities for Muthoot Finance and Arvind

0.79

Correlation Coefficient

Muthoot Finance  Arvind

Poor diversification

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

Pair Corralation between Muthoot Finance and Arvind

Assuming the 90 days trading horizon Muthoot Finance is expected to generate 1.1 times less return on investment than Arvind. But when comparing it to its historical volatility, Muthoot Finance Limited is 1.91 times less risky than Arvind. It trades about 0.27 of its potential returns per unit of risk. Arvind Limited is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  37,295  in Arvind Limited on September 29, 2024 and sell it today you would earn a total of  2,925  from holding Arvind Limited or generate 7.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	91.3%
Values	Daily Returns

Muthoot Finance Limited  vs.  Arvind Limited

Muthoot Finance

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Muthoot Finance Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Muthoot Finance is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Arvind Limited

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Arvind Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady forward indicators, Arvind may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Muthoot Finance and Arvind

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

The idea behind Muthoot Finance Limited and Arvind 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.

Check out your portfolio center.

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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.