Correlation Between Varun Beverages and Vardhman Holdings

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

Diversification Opportunities for Varun Beverages and Vardhman Holdings

0.42

Correlation Coefficient

Varun Beverages  Vardhman Holdings

Very weak diversification

The 3 months correlation between Varun and Vardhman is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Varun Beverages Limited and Vardhman Holdings Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vardhman Holdings 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 Vardhman Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vardhman Holdings has no effect on the direction of Varun Beverages i.e., Varun Beverages and Vardhman Holdings go up and down completely randomly.

Pair Corralation between Varun Beverages and Vardhman Holdings

Assuming the 90 days trading horizon Varun Beverages is expected to generate 1.8 times less return on investment than Vardhman Holdings. But when comparing it to its historical volatility, Varun Beverages Limited is 1.85 times less risky than Vardhman Holdings. It trades about 0.04 of its potential returns per unit of risk. Vardhman Holdings Limited is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  408,115  in Vardhman Holdings Limited on October 3, 2024 and sell it today you would earn a total of  33,390  from holding Vardhman Holdings Limited or generate 8.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Varun Beverages Limited  vs.  Vardhman Holdings Limited

Varun Beverages

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Varun Beverages Limited are ranked lower than 5 (%) 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.

Vardhman Holdings

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vardhman Holdings Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Vardhman Holdings exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Varun Beverages and Vardhman Holdings

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

The idea behind Varun Beverages Limited and Vardhman Holdings 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.