Correlation Between Varun Beverages and Muthoot Finance

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

Diversification Opportunities for Varun Beverages and Muthoot Finance

0.7

Correlation Coefficient

Varun Beverages  Muthoot Finance

Poor diversification

The 3 months correlation between Varun and Muthoot is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Varun Beverages Limited and Muthoot Finance Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Muthoot Finance 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 Muthoot Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Muthoot Finance has no effect on the direction of Varun Beverages i.e., Varun Beverages and Muthoot Finance go up and down completely randomly.

Pair Corralation between Varun Beverages and Muthoot Finance

Assuming the 90 days trading horizon Varun Beverages Limited is expected to generate 13.45 times more return on investment than Muthoot Finance. However, Varun Beverages is 13.45 times more volatile than Muthoot Finance Limited. It trades about 0.06 of its potential returns per unit of risk. Muthoot Finance Limited is currently generating about 0.13 per unit of risk. If you would invest  26,586  in Varun Beverages Limited on October 5, 2024 and sell it today you would earn a total of  38,634  from holding Varun Beverages Limited or generate 145.32% 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.  Muthoot Finance 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 uncertain technical and fundamental indicators, Varun Beverages exhibited solid returns over the last few months and may actually be approaching a breakup point.

Muthoot Finance

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Muthoot Finance Limited are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Muthoot Finance unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Varun Beverages and Muthoot Finance

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

The idea behind Varun Beverages Limited and Muthoot Finance 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.