Correlation Between Heritage Foods and Megastar Foods

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

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

Diversification Opportunities for Heritage Foods and Megastar Foods

0.05

Correlation Coefficient

Heritage Foods  Megastar Foods

Significant diversification

The 3 months correlation between Heritage and Megastar is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Heritage Foods Limited and Megastar Foods Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Megastar Foods and Heritage Foods 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 Heritage Foods Limited are associated (or correlated) with Megastar Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Megastar Foods has no effect on the direction of Heritage Foods i.e., Heritage Foods and Megastar Foods go up and down completely randomly.

Pair Corralation between Heritage Foods and Megastar Foods

Assuming the 90 days trading horizon Heritage Foods Limited is expected to under-perform the Megastar Foods. But the stock apears to be less risky and, when comparing its historical volatility, Heritage Foods Limited is 1.45 times less risky than Megastar Foods. The stock trades about -0.19 of its potential returns per unit of risk. The Megastar Foods Limited is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  22,969  in Megastar Foods Limited on December 1, 2024 and sell it today you would lose (2,255) from holding Megastar Foods Limited or give up 9.82% of portfolio value over 90 days.

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

Heritage Foods Limited  vs.  Megastar Foods Limited

Heritage Foods

Risk-Adjusted Performance

Very Weak

Over the last 90 days Heritage Foods Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Megastar Foods

Risk-Adjusted Performance

Very Weak

Over the last 90 days Megastar Foods Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Heritage Foods and Megastar Foods

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

The idea behind Heritage Foods Limited and Megastar Foods 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.