Correlation Between Varun Beverages and Nippon Life

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

Diversification Opportunities for Varun Beverages and Nippon Life

0.19

Correlation Coefficient

Varun Beverages  Nippon Life

Average diversification

The 3 months correlation between Varun and Nippon is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Varun Beverages Limited and Nippon Life India in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nippon Life India 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 Nippon Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nippon Life India has no effect on the direction of Varun Beverages i.e., Varun Beverages and Nippon Life go up and down completely randomly.

Pair Corralation between Varun Beverages and Nippon Life

Assuming the 90 days trading horizon Varun Beverages is expected to generate 3.17 times less return on investment than Nippon Life. But when comparing it to its historical volatility, Varun Beverages Limited is 1.12 times less risky than Nippon Life. It trades about 0.04 of its potential returns per unit of risk. Nippon Life India is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  66,006  in Nippon Life India on September 14, 2024 and sell it today you would earn a total of  11,299  from holding Nippon Life India or generate 17.12% 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.  Nippon Life India

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 newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Nippon Life India

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nippon Life India are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental indicators, Nippon Life exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Varun Beverages and Nippon Life

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

The idea behind Varun Beverages Limited and Nippon Life India 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.

Check out your portfolio center.

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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.