Correlation Between Varun Beverages and Linc

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

Diversification Opportunities for Varun Beverages and Linc

0.09

Correlation Coefficient

Varun Beverages  Linc

Significant diversification

The 3 months correlation between Varun and Linc is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Varun Beverages Limited and Linc Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Linc 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 Linc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Linc Limited has no effect on the direction of Varun Beverages i.e., Varun Beverages and Linc go up and down completely randomly.

Pair Corralation between Varun Beverages and Linc

Assuming the 90 days trading horizon Varun Beverages is expected to generate 45.4 times less return on investment than Linc. But when comparing it to its historical volatility, Varun Beverages Limited is 57.98 times less risky than Linc. It trades about 0.15 of its potential returns per unit of risk. Linc Limited is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  15,410  in Linc Limited on October 6, 2024 and sell it today you would earn a total of  475.00  from holding Linc Limited or generate 3.08% return on investment over 90 days.

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

Varun Beverages Limited  vs.  Linc 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.

Linc Limited

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Linc Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Linc unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Varun Beverages and Linc

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

The idea behind Varun Beverages Limited and Linc 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.