Correlation Between Muthoot Finance and Indian Renewable

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

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

Diversification Opportunities for Muthoot Finance and Indian Renewable

0.66

Correlation Coefficient

Muthoot Finance  Indian Renewable

Poor diversification

The 3 months correlation between Muthoot and Indian is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Muthoot Finance Limited and Indian Renewable Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indian Renewable Energy and Muthoot Finance 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 Muthoot Finance Limited are associated (or correlated) with Indian Renewable. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indian Renewable Energy has no effect on the direction of Muthoot Finance i.e., Muthoot Finance and Indian Renewable go up and down completely randomly.

Pair Corralation between Muthoot Finance and Indian Renewable

Assuming the 90 days trading horizon Muthoot Finance Limited is expected to generate 0.64 times more return on investment than Indian Renewable. However, Muthoot Finance Limited is 1.57 times less risky than Indian Renewable. It trades about -0.02 of its potential returns per unit of risk. Indian Renewable Energy is currently generating about -0.09 per unit of risk. If you would invest  196,500  in Muthoot Finance Limited on September 2, 2024 and sell it today you would lose (4,795) from holding Muthoot Finance Limited or give up 2.44% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Muthoot Finance Limited  vs.  Indian Renewable Energy

Muthoot Finance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Muthoot Finance Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Muthoot Finance is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Indian Renewable Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Indian Renewable Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Muthoot Finance and Indian Renewable

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

The idea behind Muthoot Finance Limited and Indian Renewable Energy 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.