Correlation Between Mega Lifesciences and Home Product

Can any of the company-specific risk be diversified away by investing in both Mega Lifesciences and Home Product 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 Home Product 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 Home Product Center, you can compare the effects of market volatilities on Mega Lifesciences and Home Product 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 Home Product. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mega Lifesciences and Home Product.

Diversification Opportunities for Mega Lifesciences and Home Product

0.62

Correlation Coefficient

Mega Lifesciences  Home Product

Poor diversification

The 3 months correlation between Mega and Home is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Mega Lifesciences Public and Home Product Center in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Product Center 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 Home Product. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Product Center has no effect on the direction of Mega Lifesciences i.e., Mega Lifesciences and Home Product go up and down completely randomly.

Pair Corralation between Mega Lifesciences and Home Product

Assuming the 90 days trading horizon Mega Lifesciences Public is expected to under-perform the Home Product. But the stock apears to be less risky and, when comparing its historical volatility, Mega Lifesciences Public is 1.17 times less risky than Home Product. The stock trades about -0.05 of its potential returns per unit of risk. The Home Product Center is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  890.00  in Home Product Center on September 1, 2024 and sell it today you would earn a total of  55.00  from holding Home Product Center or generate 6.18% return on investment over 90 days.

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

Mega Lifesciences Public  vs.  Home Product Center

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.

Home Product Center

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Home Product Center are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Home Product may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Mega Lifesciences and Home Product

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

The idea behind Mega Lifesciences Public and Home Product Center 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.