Correlation Between United Breweries and MRF
Can any of the company-specific risk be diversified away by investing in both United Breweries 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 United Breweries and MRF into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between United Breweries Limited and MRF Limited, you can compare the effects of market volatilities on United Breweries 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 United Breweries with a short position of MRF. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Breweries and MRF.
Diversification Opportunities for United Breweries and MRF
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between United and MRF is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding United Breweries Limited and MRF Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MRF Limited and United Breweries 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 United Breweries 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 United Breweries i.e., United Breweries and MRF go up and down completely randomly.
Pair Corralation between United Breweries and MRF
Assuming the 90 days trading horizon United Breweries Limited is expected to under-perform the MRF. In addition to that, United Breweries is 1.03 times more volatile than MRF Limited. It trades about -0.05 of its total potential returns per unit of risk. MRF Limited is currently generating about 0.04 per unit of volatility. If you would invest 12,308,800 in MRF Limited on August 29, 2024 and sell it today you would earn a total of 108,500 from holding MRF Limited or generate 0.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
United Breweries Limited vs. MRF Limited
Performance |
| Timeline |
| United Breweries |
| MRF Limited |
United Breweries and MRF Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with United Breweries and MRF
The main advantage of trading using opposite United Breweries and MRF positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Breweries 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 United Breweries 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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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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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