Correlation Between Varun Beverages and Asian Hotels

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

Diversification Opportunities for Varun Beverages and Asian Hotels

0.37

Correlation Coefficient

Varun Beverages  Asian Hotels

Weak diversification

The 3 months correlation between Varun and Asian is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Varun Beverages Limited and Asian Hotels Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asian Hotels Limited 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 Asian Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asian Hotels Limited has no effect on the direction of Varun Beverages i.e., Varun Beverages and Asian Hotels go up and down completely randomly.

Pair Corralation between Varun Beverages and Asian Hotels

Assuming the 90 days trading horizon Varun Beverages is expected to generate 2.06 times less return on investment than Asian Hotels. But when comparing it to its historical volatility, Varun Beverages Limited is 1.72 times less risky than Asian Hotels. It trades about 0.15 of its potential returns per unit of risk. Asian Hotels Limited is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  21,649  in Asian Hotels Limited on October 6, 2024 and sell it today you would earn a total of  9,576  from holding Asian Hotels Limited or generate 44.23% return on investment over 90 days.

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

Varun Beverages Limited  vs.  Asian Hotels 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.

Asian Hotels Limited

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Asian Hotels Limited are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Asian Hotels displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Varun Beverages and Asian Hotels

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

The idea behind Varun Beverages Limited and Asian Hotels 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.