Correlation Between MRF and HDFC Asset

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

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

Diversification Opportunities for MRF and HDFC Asset

0.24

Correlation Coefficient

MRF  HDFC Asset

Modest diversification

The 3 months correlation between MRF and HDFC is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding MRF Limited and HDFC Asset Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HDFC Asset Management 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 HDFC Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HDFC Asset Management has no effect on the direction of MRF i.e., MRF and HDFC Asset go up and down completely randomly.

Pair Corralation between MRF and HDFC Asset

Assuming the 90 days trading horizon MRF Limited is expected to under-perform the HDFC Asset. But the stock apears to be less risky and, when comparing its historical volatility, MRF Limited is 1.64 times less risky than HDFC Asset. The stock trades about -0.05 of its potential returns per unit of risk. The HDFC Asset Management is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  437,830  in HDFC Asset Management on September 20, 2024 and sell it today you would lose (1,015) from holding HDFC Asset Management or give up 0.23% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

MRF Limited  vs.  HDFC Asset Management

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

HDFC Asset Management

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HDFC Asset Management has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, HDFC Asset is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with MRF and HDFC Asset

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

The idea behind MRF Limited and HDFC Asset Management 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.