Correlation Between MRF and Ami Organics

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

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

Diversification Opportunities for MRF and Ami Organics

-0.51

Correlation Coefficient

MRF  Ami Organics

Excellent diversification

The 3 months correlation between MRF and Ami is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding MRF Limited and Ami Organics Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ami Organics Limited and MRF 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 MRF Limited are associated (or correlated) with Ami Organics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ami Organics Limited has no effect on the direction of MRF i.e., MRF and Ami Organics go up and down completely randomly.

Pair Corralation between MRF and Ami Organics

Assuming the 90 days trading horizon MRF Limited is expected to under-perform the Ami Organics. But the stock apears to be less risky and, when comparing its historical volatility, MRF Limited is 2.89 times less risky than Ami Organics. The stock trades about -0.04 of its potential returns per unit of risk. The Ami Organics Limited is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  154,015  in Ami Organics Limited on September 14, 2024 and sell it today you would earn a total of  59,560  from holding Ami Organics Limited or generate 38.67% return on investment over 90 days.

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

MRF Limited  vs.  Ami Organics Limited

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 newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Ami Organics Limited

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ami Organics Limited are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Ami Organics sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MRF and Ami Organics

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

The idea behind MRF Limited and Ami Organics 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.

Check out your portfolio center.

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.