Correlation Between Shyam Telecom and MRF

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

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

Diversification Opportunities for Shyam Telecom and MRF

-0.7

Correlation Coefficient

Shyam Telecom  MRF

Excellent diversification

The 3 months correlation between Shyam and MRF is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Shyam Telecom Limited and MRF Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MRF Limited and Shyam Telecom 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 Shyam Telecom Limited 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 Shyam Telecom i.e., Shyam Telecom and MRF go up and down completely randomly.

Pair Corralation between Shyam Telecom and MRF

Assuming the 90 days trading horizon Shyam Telecom Limited is expected to generate 2.94 times more return on investment than MRF. However, Shyam Telecom is 2.94 times more volatile than MRF Limited. It trades about 0.32 of its potential returns per unit of risk. MRF Limited is currently generating about -0.09 per unit of risk. If you would invest  1,350  in Shyam Telecom Limited on September 22, 2024 and sell it today you would earn a total of  1,170  from holding Shyam Telecom Limited or generate 86.67% return on investment over 90 days.

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

Shyam Telecom Limited  vs.  MRF Limited

Shyam Telecom Limited

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shyam Telecom Limited are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Shyam Telecom exhibited solid returns over the last few months and may actually be approaching a breakup point.

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 unsteady 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.

Pair Trading with Shyam Telecom and MRF

The main advantage of trading using opposite Shyam Telecom and MRF positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shyam Telecom 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 Shyam Telecom Limited 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.