Correlation Between Megastar Foods and Akums Drugs

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

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

Diversification Opportunities for Megastar Foods and Akums Drugs

0.58

Correlation Coefficient

Megastar Foods  Akums Drugs

Very weak diversification

The 3 months correlation between Megastar and Akums is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Megastar Foods Limited and Akums Drugs and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Akums Drugs and Megastar Foods 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 Megastar Foods Limited are associated (or correlated) with Akums Drugs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Akums Drugs has no effect on the direction of Megastar Foods i.e., Megastar Foods and Akums Drugs go up and down completely randomly.

Pair Corralation between Megastar Foods and Akums Drugs

Assuming the 90 days trading horizon Megastar Foods Limited is expected to under-perform the Akums Drugs. But the stock apears to be less risky and, when comparing its historical volatility, Megastar Foods Limited is 1.3 times less risky than Akums Drugs. The stock trades about -0.2 of its potential returns per unit of risk. The Akums Drugs and is currently generating about -0.14 of returns per unit of risk over similar time horizon. If you would invest  83,345  in Akums Drugs and on August 31, 2024 and sell it today you would lose (22,615) from holding Akums Drugs and or give up 27.13% of portfolio value over 90 days.

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

Megastar Foods Limited  vs.  Akums Drugs and

Megastar Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Megastar Foods Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Akums Drugs

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Akums Drugs and has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in December 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Megastar Foods and Akums Drugs

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

The idea behind Megastar Foods Limited and Akums Drugs and 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.