Correlation Between Aarti Drugs and MRF

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

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

Diversification Opportunities for Aarti Drugs and MRF

0.77

Correlation Coefficient

Aarti Drugs  MRF

Poor diversification

The 3 months correlation between Aarti and MRF is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Aarti Drugs Limited and MRF Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MRF Limited and Aarti Drugs 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 Aarti Drugs 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 Aarti Drugs i.e., Aarti Drugs and MRF go up and down completely randomly.

Pair Corralation between Aarti Drugs and MRF

Assuming the 90 days trading horizon Aarti Drugs Limited is expected to under-perform the MRF. But the stock apears to be less risky and, when comparing its historical volatility, Aarti Drugs Limited is 1.14 times less risky than MRF. The stock trades about -0.27 of its potential returns per unit of risk. The MRF Limited is currently generating about -0.24 of returns per unit of risk over similar time horizon. If you would invest  13,851,000  in MRF Limited on August 31, 2024 and sell it today you would lose (1,484,800) from holding MRF Limited or give up 10.72% of portfolio value over 90 days.

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

Aarti Drugs Limited  vs.  MRF Limited

Aarti Drugs Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aarti Drugs Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in December 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

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 latest weak 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.

Pair Trading with Aarti Drugs and MRF

The main advantage of trading using opposite Aarti Drugs and MRF positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aarti Drugs 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 Aarti Drugs 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.