Correlation Between Power Finance and Varun Beverages

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

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

Diversification Opportunities for Power Finance and Varun Beverages

0.56

Correlation Coefficient

Power Finance  Varun Beverages

Very weak diversification

The 3 months correlation between Power and Varun is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Power Finance and Varun Beverages Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Varun Beverages and Power 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 Power Finance are associated (or correlated) with Varun Beverages. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Varun Beverages has no effect on the direction of Power Finance i.e., Power Finance and Varun Beverages go up and down completely randomly.

Pair Corralation between Power Finance and Varun Beverages

Assuming the 90 days trading horizon Power Finance is expected to under-perform the Varun Beverages. In addition to that, Power Finance is 1.05 times more volatile than Varun Beverages Limited. It trades about -0.03 of its total potential returns per unit of risk. Varun Beverages Limited is currently generating about -0.02 per unit of volatility. If you would invest  64,685  in Varun Beverages Limited on September 24, 2024 and sell it today you would lose (3,430) from holding Varun Beverages Limited or give up 5.3% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Power Finance  vs.  Varun Beverages Limited

Power Finance

Risk-Adjusted Performance

0 of 100

Very Weak

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

Varun Beverages

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Power Finance and Varun Beverages

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

The idea behind Power Finance and Varun Beverages 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.