Correlation Between Varun Beverages and Arrow Greentech

Can any of the company-specific risk be diversified away by investing in both Varun Beverages and Arrow Greentech 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 Arrow Greentech 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 Arrow Greentech Limited, you can compare the effects of market volatilities on Varun Beverages and Arrow Greentech 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 Arrow Greentech. Check out your portfolio center. Please also check ongoing floating volatility patterns of Varun Beverages and Arrow Greentech.

Diversification Opportunities for Varun Beverages and Arrow Greentech

0.02

Correlation Coefficient

Varun Beverages  Arrow Greentech

Significant diversification

The 3 months correlation between Varun and Arrow is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Varun Beverages Limited and Arrow Greentech Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arrow Greentech 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 Arrow Greentech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arrow Greentech has no effect on the direction of Varun Beverages i.e., Varun Beverages and Arrow Greentech go up and down completely randomly.

Pair Corralation between Varun Beverages and Arrow Greentech

Assuming the 90 days trading horizon Varun Beverages Limited is expected to generate 0.49 times more return on investment than Arrow Greentech. However, Varun Beverages Limited is 2.03 times less risky than Arrow Greentech. It trades about 0.15 of its potential returns per unit of risk. Arrow Greentech Limited is currently generating about -0.06 per unit of risk. If you would invest  58,625  in Varun Beverages Limited on October 6, 2024 and sell it today you would earn a total of  6,595  from holding Varun Beverages Limited or generate 11.25% return on investment over 90 days.

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

Varun Beverages Limited  vs.  Arrow Greentech Limited

Varun Beverages

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Varun Beverages Limited are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal technical and fundamental indicators, Varun Beverages exhibited solid returns over the last few months and may actually be approaching a breakup point.

Arrow Greentech

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Arrow Greentech Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain technical and fundamental indicators, Arrow Greentech may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Varun Beverages and Arrow Greentech

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

The idea behind Varun Beverages Limited and Arrow Greentech 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.