Correlation Between MRF and PNC Infratech

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

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

Diversification Opportunities for MRF and PNC Infratech

0.73

Correlation Coefficient

MRF  PNC Infratech

Poor diversification

The 3 months correlation between MRF and PNC is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding MRF Limited and PNC Infratech Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PNC Infratech 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 PNC Infratech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PNC Infratech Limited has no effect on the direction of MRF i.e., MRF and PNC Infratech go up and down completely randomly.

Pair Corralation between MRF and PNC Infratech

Assuming the 90 days trading horizon MRF is expected to generate 1.84 times less return on investment than PNC Infratech. But when comparing it to its historical volatility, MRF Limited is 3.35 times less risky than PNC Infratech. It trades about 0.21 of its potential returns per unit of risk. PNC Infratech Limited is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  28,585  in PNC Infratech Limited on September 26, 2024 and sell it today you would earn a total of  2,225  from holding PNC Infratech Limited or generate 7.78% return on investment over 90 days.

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

MRF Limited  vs.  PNC Infratech 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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

PNC Infratech Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PNC Infratech Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady performance in the last few months, the Stock's technical and fundamental indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with MRF and PNC Infratech

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

The idea behind MRF Limited and PNC Infratech 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.