Correlation Between Linc and Megastar Foods

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

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

Diversification Opportunities for Linc and Megastar Foods

-0.08

Correlation Coefficient

Linc  Megastar Foods

Good diversification

The 3 months correlation between Linc and Megastar is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Linc 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 Linc 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 Linc 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 Linc i.e., Linc and Megastar Foods go up and down completely randomly.

Pair Corralation between Linc and Megastar Foods

Assuming the 90 days trading horizon Linc Limited is expected to under-perform the Megastar Foods. But the stock apears to be less risky and, when comparing its historical volatility, Linc Limited is 1.17 times less risky than Megastar Foods. The stock trades about -0.14 of its potential returns per unit of risk. The Megastar Foods Limited is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  22,865  in Megastar Foods Limited on October 11, 2024 and sell it today you would earn a total of  6,211  from holding Megastar Foods Limited or generate 27.16% return on investment over 90 days.

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

Linc Limited  vs.  Megastar Foods Limited

Linc Limited

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Linc Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Linc unveiled solid returns over the last few months and may actually be approaching a breakup point.

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 fragile basic indicators, Megastar Foods sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Linc and Megastar Foods

The main advantage of trading using opposite Linc and Megastar Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Linc 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 Linc 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.