Correlation Between Varun Beverages and Fertilizers

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

Diversification Opportunities for Varun Beverages and Fertilizers

0.6

Correlation Coefficient

Varun Beverages  Fertilizers

Poor diversification

The 3 months correlation between Varun and Fertilizers is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Varun Beverages Limited and Fertilizers and Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fertilizers and Chemicals 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 Fertilizers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fertilizers and Chemicals has no effect on the direction of Varun Beverages i.e., Varun Beverages and Fertilizers go up and down completely randomly.

Pair Corralation between Varun Beverages and Fertilizers

Assuming the 90 days trading horizon Varun Beverages Limited is expected to generate 0.77 times more return on investment than Fertilizers. However, Varun Beverages Limited is 1.29 times less risky than Fertilizers. It trades about 0.15 of its potential returns per unit of risk. Fertilizers and Chemicals is currently generating about 0.09 per unit of risk. If you would invest  54,205  in Varun Beverages Limited on October 6, 2024 and sell it today you would earn a total of  11,015  from holding Varun Beverages Limited or generate 20.32% return on investment over 90 days.

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

Varun Beverages Limited  vs.  Fertilizers and Chemicals

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.

Fertilizers and Chemicals

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fertilizers and Chemicals are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Fertilizers unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Varun Beverages and Fertilizers

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

The idea behind Varun Beverages Limited and Fertilizers and Chemicals 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.