Correlation Between MRF and ICICI Lombard

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

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

Diversification Opportunities for MRF and ICICI Lombard

0.79

Correlation Coefficient

MRF  ICICI Lombard

Poor diversification

The 3 months correlation between MRF and ICICI is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding MRF Limited and ICICI Lombard General in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ICICI Lombard General 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 ICICI Lombard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ICICI Lombard General has no effect on the direction of MRF i.e., MRF and ICICI Lombard go up and down completely randomly.

Pair Corralation between MRF and ICICI Lombard

Assuming the 90 days trading horizon MRF Limited is expected to generate 0.89 times more return on investment than ICICI Lombard. However, MRF Limited is 1.13 times less risky than ICICI Lombard. It trades about -0.11 of its potential returns per unit of risk. ICICI Lombard General is currently generating about -0.22 per unit of risk. If you would invest  14,097,000  in MRF Limited on September 27, 2024 and sell it today you would lose (1,062,700) from holding MRF Limited or give up 7.54% of portfolio value over 90 days.

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

MRF Limited  vs.  ICICI Lombard General

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.

ICICI Lombard General

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ICICI Lombard General has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with MRF and ICICI Lombard

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

The idea behind MRF Limited and ICICI Lombard General 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.