Correlation Between MRF and BF Investment

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

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

Diversification Opportunities for MRF and BF Investment

-0.74

Correlation Coefficient

MRF  BF Investment

Pay attention - limited upside

The 3 months correlation between MRF and BFINVEST is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding MRF Limited and BF Investment Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BF Investment 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 BF Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BF Investment Limited has no effect on the direction of MRF i.e., MRF and BF Investment go up and down completely randomly.

Pair Corralation between MRF and BF Investment

Assuming the 90 days trading horizon MRF is expected to generate 6.05 times less return on investment than BF Investment. But when comparing it to its historical volatility, MRF Limited is 2.22 times less risky than BF Investment. It trades about 0.02 of its potential returns per unit of risk. BF Investment Limited is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  51,675  in BF Investment Limited on September 4, 2024 and sell it today you would earn a total of  22,330  from holding BF Investment Limited or generate 43.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.59%
Values	Daily Returns

MRF Limited  vs.  BF Investment 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 latest uncertain 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.

BF Investment Limited

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BF Investment Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady technical and fundamental indicators, BF Investment unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MRF and BF Investment

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

The idea behind MRF Limited and BF Investment 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..