Correlation Between Mega Lifesciences and AJ Plast

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

By analyzing existing cross correlation between Mega Lifesciences Public and AJ Plast Public, you can compare the effects of market volatilities on Mega Lifesciences and AJ Plast 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 Mega Lifesciences with a short position of AJ Plast. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mega Lifesciences and AJ Plast.

Diversification Opportunities for Mega Lifesciences and AJ Plast

0.28

Correlation Coefficient

Mega Lifesciences  AJ Plast

Modest diversification

The 3 months correlation between Mega and AJ Plast is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Mega Lifesciences Public and AJ Plast Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AJ Plast Public and Mega Lifesciences 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 Mega Lifesciences Public are associated (or correlated) with AJ Plast. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AJ Plast Public has no effect on the direction of Mega Lifesciences i.e., Mega Lifesciences and AJ Plast go up and down completely randomly.

Pair Corralation between Mega Lifesciences and AJ Plast

Assuming the 90 days trading horizon Mega Lifesciences Public is expected to under-perform the AJ Plast. In addition to that, Mega Lifesciences is 1.64 times more volatile than AJ Plast Public. It trades about -0.28 of its total potential returns per unit of risk. AJ Plast Public is currently generating about -0.21 per unit of volatility. If you would invest  505.00  in AJ Plast Public on September 1, 2024 and sell it today you would lose (25.00) from holding AJ Plast Public or give up 4.95% of portfolio value over 90 days.

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

Mega Lifesciences Public  vs.  AJ Plast Public

Mega Lifesciences Public

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mega Lifesciences Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Mega Lifesciences is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

AJ Plast Public

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AJ Plast Public are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting fundamental drivers, AJ Plast disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mega Lifesciences and AJ Plast

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

The idea behind Mega Lifesciences Public and AJ Plast Public 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.