Correlation Between Varun Beverages and Reliance Infrastructure

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

Diversification Opportunities for Varun Beverages and Reliance Infrastructure

0.43

Correlation Coefficient

Varun Beverages  Reliance Infrastructure

Very weak diversification

The 3 months correlation between Varun and Reliance is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Varun Beverages Limited and Reliance Infrastructure Limite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reliance Infrastructure 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 Reliance Infrastructure. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reliance Infrastructure has no effect on the direction of Varun Beverages i.e., Varun Beverages and Reliance Infrastructure go up and down completely randomly.

Pair Corralation between Varun Beverages and Reliance Infrastructure

Assuming the 90 days trading horizon Varun Beverages Limited is expected to generate 5.85 times more return on investment than Reliance Infrastructure. However, Varun Beverages is 5.85 times more volatile than Reliance Infrastructure Limited. It trades about 0.06 of its potential returns per unit of risk. Reliance Infrastructure Limited is currently generating about 0.06 per unit of risk. If you would invest  22,798  in Varun Beverages Limited on October 24, 2024 and sell it today you would earn a total of  31,352  from holding Varun Beverages Limited or generate 137.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.79%
Values	Daily Returns

Varun Beverages Limited  vs.  Reliance Infrastructure Limite

Varun Beverages

Risk-Adjusted Performance

0 of 100

Very Weak

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

Reliance Infrastructure

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Reliance Infrastructure Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, Reliance Infrastructure is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Varun Beverages and Reliance Infrastructure

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

The idea behind Varun Beverages Limited and Reliance Infrastructure 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.