Correlation Between Varun Beverages and GM Breweries

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

Diversification Opportunities for Varun Beverages and GM Breweries

0.25

Correlation Coefficient

Varun Beverages  GM Breweries

Modest diversification

The 3 months correlation between Varun and GMBREW is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Varun Beverages Limited and GM Breweries Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GM Breweries 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 GM Breweries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GM Breweries Limited has no effect on the direction of Varun Beverages i.e., Varun Beverages and GM Breweries go up and down completely randomly.

Pair Corralation between Varun Beverages and GM Breweries

Assuming the 90 days trading horizon Varun Beverages Limited is expected to generate 0.84 times more return on investment than GM Breweries. However, Varun Beverages Limited is 1.2 times less risky than GM Breweries. It trades about 0.07 of its potential returns per unit of risk. GM Breweries Limited is currently generating about 0.01 per unit of risk. If you would invest  61,300  in Varun Beverages Limited on September 28, 2024 and sell it today you would earn a total of  1,110  from holding Varun Beverages Limited or generate 1.81% 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.  GM Breweries Limited

Varun Beverages

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Varun Beverages Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Varun Beverages is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

GM Breweries Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GM Breweries Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Varun Beverages and GM Breweries

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

The idea behind Varun Beverages Limited and GM Breweries 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.