Correlation Between Varun Beverages and APL Apollo

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

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

Diversification Opportunities for Varun Beverages and APL Apollo

-0.33

Correlation Coefficient

Varun Beverages  APL Apollo

Very good diversification

The 3 months correlation between Varun and APL is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Varun Beverages Limited and APL Apollo Tubes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on APL Apollo Tubes and Varun Beverages 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 Varun Beverages Limited are associated (or correlated) with APL Apollo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of APL Apollo Tubes has no effect on the direction of Varun Beverages i.e., Varun Beverages and APL Apollo go up and down completely randomly.

Pair Corralation between Varun Beverages and APL Apollo

Assuming the 90 days trading horizon Varun Beverages is expected to generate 7.84 times less return on investment than APL Apollo. In addition to that, Varun Beverages is 1.47 times more volatile than APL Apollo Tubes. It trades about 0.01 of its total potential returns per unit of risk. APL Apollo Tubes is currently generating about 0.12 per unit of volatility. If you would invest  141,696  in APL Apollo Tubes on September 12, 2024 and sell it today you would earn a total of  18,134  from holding APL Apollo Tubes or generate 12.8% return on investment over 90 days.

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

Varun Beverages Limited  vs.  APL Apollo Tubes

Varun Beverages

Risk-Adjusted Performance

0 of 100

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 rather sound technical and fundamental indicators, Varun Beverages is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

APL Apollo Tubes

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in APL Apollo Tubes are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain essential indicators, APL Apollo disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Varun Beverages and APL Apollo

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

The idea behind Varun Beverages Limited and APL Apollo Tubes 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.