Correlation Between Ravi Kumar and MRF

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

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

Diversification Opportunities for Ravi Kumar and MRF

0.6

Correlation Coefficient

Ravi Kumar  MRF

Poor diversification

The 3 months correlation between Ravi and MRF is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Ravi Kumar Distilleries and MRF Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MRF Limited and Ravi Kumar 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 Ravi Kumar Distilleries are associated (or correlated) with MRF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MRF Limited has no effect on the direction of Ravi Kumar i.e., Ravi Kumar and MRF go up and down completely randomly.

Pair Corralation between Ravi Kumar and MRF

Assuming the 90 days trading horizon Ravi Kumar Distilleries is expected to generate 1.94 times more return on investment than MRF. However, Ravi Kumar is 1.94 times more volatile than MRF Limited. It trades about 0.02 of its potential returns per unit of risk. MRF Limited is currently generating about -0.05 per unit of risk. If you would invest  2,975  in Ravi Kumar Distilleries on September 20, 2024 and sell it today you would earn a total of  35.00  from holding Ravi Kumar Distilleries or generate 1.18% return on investment over 90 days.

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

Ravi Kumar Distilleries  vs.  MRF Limited

Ravi Kumar Distilleries

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ravi Kumar Distilleries are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Ravi Kumar is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

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.

Pair Trading with Ravi Kumar and MRF

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

The idea behind Ravi Kumar Distilleries and MRF 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.