Correlation Between Varun Beverages and Dodla Dairy

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

Diversification Opportunities for Varun Beverages and Dodla Dairy

0.74

Correlation Coefficient

Varun Beverages  Dodla Dairy

Poor diversification

The 3 months correlation between Varun and Dodla is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Varun Beverages Limited and Dodla Dairy Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dodla Dairy 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 Dodla Dairy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dodla Dairy Limited has no effect on the direction of Varun Beverages i.e., Varun Beverages and Dodla Dairy go up and down completely randomly.

Pair Corralation between Varun Beverages and Dodla Dairy

Assuming the 90 days trading horizon Varun Beverages Limited is expected to generate 8.45 times more return on investment than Dodla Dairy. However, Varun Beverages is 8.45 times more volatile than Dodla Dairy Limited. It trades about 0.06 of its potential returns per unit of risk. Dodla Dairy Limited is currently generating about 0.07 per unit of risk. If you would invest  24,140  in Varun Beverages Limited on October 26, 2024 and sell it today you would earn a total of  30,030  from holding Varun Beverages Limited or generate 124.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Varun Beverages Limited  vs.  Dodla Dairy Limited

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 latest inconsistent performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Dodla Dairy Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dodla Dairy 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 fundamental indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Varun Beverages and Dodla Dairy

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

The idea behind Varun Beverages Limited and Dodla Dairy 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.