Correlation Between Varun Beverages and MRF

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

Diversification Opportunities for Varun Beverages and MRF

0.34

Correlation Coefficient

Varun Beverages  MRF

Weak diversification

The 3 months correlation between Varun and MRF is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Varun Beverages Limited and MRF Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MRF 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 MRF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MRF Limited has no effect on the direction of Varun Beverages i.e., Varun Beverages and MRF go up and down completely randomly.

Pair Corralation between Varun Beverages and MRF

Assuming the 90 days trading horizon Varun Beverages Limited is expected to generate 2.36 times more return on investment than MRF. However, Varun Beverages is 2.36 times more volatile than MRF Limited. It trades about 0.02 of its potential returns per unit of risk. MRF Limited is currently generating about -0.1 per unit of risk. If you would invest  60,858  in Varun Beverages Limited on September 2, 2024 and sell it today you would earn a total of  1,262  from holding Varun Beverages Limited or generate 2.07% 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.  MRF Limited

Varun Beverages

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Varun Beverages Limited are ranked lower than 1 (%) 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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

MRF Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MRF Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating 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.

Pair Trading with Varun Beverages and MRF

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

The idea behind Varun Beverages Limited and MRF 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.