Correlation Between Avonmore Capital and MRF

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

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

Diversification Opportunities for Avonmore Capital and MRF

-0.01

Correlation Coefficient

Avonmore Capital  MRF

Good diversification

The 3 months correlation between Avonmore and MRF is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Avonmore Capital Management and MRF Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MRF Limited and Avonmore Capital 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 Avonmore Capital Management 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 Avonmore Capital i.e., Avonmore Capital and MRF go up and down completely randomly.

Pair Corralation between Avonmore Capital and MRF

Assuming the 90 days trading horizon Avonmore Capital Management is expected to generate 2.82 times more return on investment than MRF. However, Avonmore Capital is 2.82 times more volatile than MRF Limited. It trades about 0.14 of its potential returns per unit of risk. MRF Limited is currently generating about -0.12 per unit of risk. If you would invest  1,415  in Avonmore Capital Management on August 31, 2024 and sell it today you would earn a total of  364.00  from holding Avonmore Capital Management or generate 25.72% return on investment over 90 days.

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

Avonmore Capital Management  vs.  MRF Limited

Avonmore Capital Man

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Avonmore Capital Management are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Avonmore Capital reported solid returns over the last few months and may actually be approaching a breakup point.

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 Avonmore Capital and MRF

The main advantage of trading using opposite Avonmore Capital and MRF positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Avonmore Capital 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 Avonmore Capital Management 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.