Correlation Between Infosys and Megastar Foods

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

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

Diversification Opportunities for Infosys and Megastar Foods

-0.02

Correlation Coefficient

Infosys  Megastar Foods

Good diversification

The 3 months correlation between Infosys and Megastar is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Infosys 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 Infosys 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 Infosys 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 Infosys i.e., Infosys and Megastar Foods go up and down completely randomly.

Pair Corralation between Infosys and Megastar Foods

Assuming the 90 days trading horizon Infosys is expected to generate 8.71 times less return on investment than Megastar Foods. But when comparing it to its historical volatility, Infosys Limited is 2.01 times less risky than Megastar Foods. It trades about 0.03 of its potential returns per unit of risk. Megastar Foods Limited is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  24,985  in Megastar Foods Limited on October 10, 2024 and sell it today you would earn a total of  5,141  from holding Megastar Foods Limited or generate 20.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Infosys Limited  vs.  Megastar Foods Limited

Infosys Limited

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Infosys Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Infosys is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Megastar Foods

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Megastar Foods Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile basic indicators, Megastar Foods sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Infosys and Megastar Foods

The main advantage of trading using opposite Infosys and Megastar Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Infosys 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 Infosys 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.

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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.