Correlation Between IOL Chemicals and Megastar Foods

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

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

Diversification Opportunities for IOL Chemicals and Megastar Foods

0.53

Correlation Coefficient

IOL Chemicals  Megastar Foods

Very weak diversification

The 3 months correlation between IOL and Megastar is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding IOL Chemicals and and Megastar Foods Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Megastar Foods and IOL Chemicals 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 IOL Chemicals and 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 IOL Chemicals i.e., IOL Chemicals and Megastar Foods go up and down completely randomly.

Pair Corralation between IOL Chemicals and Megastar Foods

Assuming the 90 days trading horizon IOL Chemicals is expected to generate 47.03 times less return on investment than Megastar Foods. But when comparing it to its historical volatility, IOL Chemicals and is 1.19 times less risky than Megastar Foods. It trades about 0.0 of its potential returns per unit of risk. Megastar Foods Limited is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  24,860  in Megastar Foods Limited on October 11, 2024 and sell it today you would earn a total of  4,216  from holding Megastar Foods Limited or generate 16.96% return on investment over 90 days.

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

IOL Chemicals and  vs.  Megastar Foods Limited

IOL Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IOL Chemicals and has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy essential indicators, IOL Chemicals is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Megastar Foods

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Megastar Foods Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent basic indicators, Megastar Foods sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IOL Chemicals and Megastar Foods

The main advantage of trading using opposite IOL Chemicals and Megastar Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IOL Chemicals 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 IOL Chemicals and 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.