Correlation Between SBI Life and MRF

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

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

Diversification Opportunities for SBI Life and MRF

0.75

Correlation Coefficient

SBI Life  MRF

Poor diversification

The 3 months correlation between SBI and MRF is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding SBI Life Insurance and MRF Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MRF Limited and SBI Life 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 SBI Life Insurance are associated (or correlated) with MRF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MRF Limited has no effect on the direction of SBI Life i.e., SBI Life and MRF go up and down completely randomly.

Pair Corralation between SBI Life and MRF

Assuming the 90 days trading horizon SBI Life Insurance is expected to under-perform the MRF. In addition to that, SBI Life is 1.38 times more volatile than MRF Limited. It trades about -0.25 of its total potential returns per unit of risk. MRF Limited is currently generating about -0.03 per unit of volatility. If you would invest  13,595,900  in MRF Limited on September 12, 2024 and sell it today you would lose (350,100) from holding MRF Limited or give up 2.58% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

SBI Life Insurance  vs.  MRF Limited

SBI Life Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SBI Life Insurance 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 forward indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with SBI Life and MRF

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

The idea behind SBI Life Insurance and MRF 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.