Correlation Between Varun Beverages and Blue Coast

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

Diversification Opportunities for Varun Beverages and Blue Coast

-0.53

Correlation Coefficient

Varun Beverages  Blue Coast

Excellent diversification

The 3 months correlation between Varun and Blue is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Varun Beverages Limited and Blue Coast Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Blue Coast Hotels 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 Blue Coast. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Blue Coast Hotels has no effect on the direction of Varun Beverages i.e., Varun Beverages and Blue Coast go up and down completely randomly.

Pair Corralation between Varun Beverages and Blue Coast

Assuming the 90 days trading horizon Varun Beverages Limited is expected to generate 9.2 times more return on investment than Blue Coast. However, Varun Beverages is 9.2 times more volatile than Blue Coast Hotels. It trades about 0.06 of its potential returns per unit of risk. Blue Coast Hotels is currently generating about 0.15 per unit of risk. If you would invest  22,817  in Varun Beverages Limited on October 25, 2024 and sell it today you would earn a total of  31,223  from holding Varun Beverages Limited or generate 136.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	80.7%
Values	Daily Returns

Varun Beverages Limited  vs.  Blue Coast Hotels

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 uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Blue Coast Hotels

Risk-Adjusted Performance

36 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Blue Coast Hotels are ranked lower than 36 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Blue Coast sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Varun Beverages and Blue Coast

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

The idea behind Varun Beverages Limited and Blue Coast Hotels 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.