Correlation Between Varun Beverages and Punjab Chemicals

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

Diversification Opportunities for Varun Beverages and Punjab Chemicals

-0.36

Correlation Coefficient

Varun Beverages  Punjab Chemicals

Very good diversification

The 3 months correlation between Varun and Punjab is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Varun Beverages Limited and Punjab Chemicals Crop in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Punjab Chemicals Crop 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 Punjab Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Punjab Chemicals Crop has no effect on the direction of Varun Beverages i.e., Varun Beverages and Punjab Chemicals go up and down completely randomly.

Pair Corralation between Varun Beverages and Punjab Chemicals

Assuming the 90 days trading horizon Varun Beverages Limited is expected to generate 7.69 times more return on investment than Punjab Chemicals. However, Varun Beverages is 7.69 times more volatile than Punjab Chemicals Crop. It trades about 0.06 of its potential returns per unit of risk. Punjab Chemicals Crop is currently generating about 0.01 per unit of risk. If you would invest  22,439  in Varun Beverages Limited on October 4, 2024 and sell it today you would earn a total of  42,431  from holding Varun Beverages Limited or generate 189.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.59%
Values	Daily Returns

Varun Beverages Limited  vs.  Punjab Chemicals Crop

Varun Beverages

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Varun Beverages Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Varun Beverages may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Punjab Chemicals Crop

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Punjab Chemicals Crop has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical 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 Punjab Chemicals

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

The idea behind Varun Beverages Limited and Punjab Chemicals Crop 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.