Correlation Between Zydus Wellness and MRF

Can any of the company-specific risk be diversified away by investing in both Zydus Wellness and MRF 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 Zydus Wellness and MRF into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Zydus Wellness Limited and MRF Limited, you can compare the effects of market volatilities on Zydus Wellness and MRF 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 Zydus Wellness with a short position of MRF. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zydus Wellness and MRF.

Diversification Opportunities for Zydus Wellness and MRF

0.4

Correlation Coefficient

Zydus Wellness  MRF

Very weak diversification

The 3 months correlation between Zydus and MRF is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Zydus Wellness Limited and MRF Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MRF Limited and Zydus Wellness 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 Zydus Wellness Limited are associated (or correlated) with MRF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MRF Limited has no effect on the direction of Zydus Wellness i.e., Zydus Wellness and MRF go up and down completely randomly.

Pair Corralation between Zydus Wellness and MRF

Assuming the 90 days trading horizon Zydus Wellness Limited is expected to generate 1.93 times more return on investment than MRF. However, Zydus Wellness is 1.93 times more volatile than MRF Limited. It trades about -0.06 of its potential returns per unit of risk. MRF Limited is currently generating about -0.25 per unit of risk. If you would invest  202,735  in Zydus Wellness Limited on October 8, 2024 and sell it today you would lose (4,570) from holding Zydus Wellness Limited or give up 2.25% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.0%
Values	Daily Returns

Zydus Wellness Limited  vs.  MRF Limited

Zydus Wellness

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Zydus Wellness 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, Zydus Wellness is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

MRF Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MRF Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, MRF is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Zydus Wellness and MRF

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

The idea behind Zydus Wellness Limited and MRF 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.