Correlation Between Bosch and MRF

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

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

Diversification Opportunities for Bosch and MRF

-0.02

Correlation Coefficient

Bosch  MRF

Good diversification

The 3 months correlation between Bosch and MRF is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Bosch Limited and MRF Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MRF Limited and Bosch 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 Bosch 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 Bosch i.e., Bosch and MRF go up and down completely randomly.

Pair Corralation between Bosch and MRF

Assuming the 90 days trading horizon Bosch Limited is expected to generate 1.12 times more return on investment than MRF. However, Bosch is 1.12 times more volatile than MRF Limited. It trades about 0.11 of its potential returns per unit of risk. MRF Limited is currently generating about 0.06 per unit of risk. If you would invest  1,674,562  in Bosch Limited on August 31, 2024 and sell it today you would earn a total of  1,793,008  from holding Bosch Limited or generate 107.07% return on investment over 90 days.

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

Bosch Limited  vs.  MRF Limited

Bosch Limited

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bosch Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating essential indicators, Bosch may actually be approaching a critical reversion point that can send shares even higher in December 2024.

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 Bosch and MRF

The main advantage of trading using opposite Bosch and MRF positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bosch 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 Bosch 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..