Correlation Between Varun Beverages and PVR INOX

Can any of the company-specific risk be diversified away by investing in both Varun Beverages and PVR INOX 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 PVR INOX 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 PVR INOX, you can compare the effects of market volatilities on Varun Beverages and PVR INOX 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 PVR INOX. Check out your portfolio center. Please also check ongoing floating volatility patterns of Varun Beverages and PVR INOX.

Diversification Opportunities for Varun Beverages and PVR INOX

0.26

Correlation Coefficient

Varun Beverages  PVR INOX

Modest diversification

The 3 months correlation between Varun and PVR is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Varun Beverages Limited and PVR INOX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PVR INOX 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 PVR INOX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PVR INOX has no effect on the direction of Varun Beverages i.e., Varun Beverages and PVR INOX go up and down completely randomly.

Pair Corralation between Varun Beverages and PVR INOX

Assuming the 90 days trading horizon Varun Beverages Limited is expected to generate 1.13 times more return on investment than PVR INOX. However, Varun Beverages is 1.13 times more volatile than PVR INOX. It trades about 0.32 of its potential returns per unit of risk. PVR INOX is currently generating about 0.04 per unit of risk. If you would invest  56,810  in Varun Beverages Limited on September 14, 2024 and sell it today you would earn a total of  7,815  from holding Varun Beverages Limited or generate 13.76% return on investment over 90 days.

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

Varun Beverages Limited  vs.  PVR INOX

Varun Beverages

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Varun Beverages Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

PVR INOX

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PVR INOX has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Varun Beverages and PVR INOX

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

The idea behind Varun Beverages Limited and PVR INOX 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.