Correlation Between Varun Beverages and Kilitch Drugs

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

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

Diversification Opportunities for Varun Beverages and Kilitch Drugs

0.33

Correlation Coefficient

Varun Beverages  Kilitch Drugs

Weak diversification

The 3 months correlation between Varun and Kilitch is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Varun Beverages Limited and Kilitch Drugs Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kilitch Drugs Limited and Varun Beverages 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 Varun Beverages Limited are associated (or correlated) with Kilitch Drugs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kilitch Drugs Limited has no effect on the direction of Varun Beverages i.e., Varun Beverages and Kilitch Drugs go up and down completely randomly.

Pair Corralation between Varun Beverages and Kilitch Drugs

Assuming the 90 days trading horizon Varun Beverages Limited is expected to generate 1.01 times more return on investment than Kilitch Drugs. However, Varun Beverages is 1.01 times more volatile than Kilitch Drugs Limited. It trades about -0.03 of its potential returns per unit of risk. Kilitch Drugs Limited is currently generating about -0.07 per unit of risk. If you would invest  65,410  in Varun Beverages Limited on September 22, 2024 and sell it today you would lose (4,155) from holding Varun Beverages Limited or give up 6.35% of portfolio value over 90 days.

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

Varun Beverages Limited  vs.  Kilitch Drugs Limited

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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

Kilitch Drugs Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kilitch Drugs Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Varun Beverages and Kilitch Drugs

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

The idea behind Varun Beverages Limited and Kilitch Drugs 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.