Correlation Between Megastar Foods and Avonmore Capital

Can any of the company-specific risk be diversified away by investing in both Megastar Foods and Avonmore Capital 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 Avonmore Capital 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 Avonmore Capital Management, you can compare the effects of market volatilities on Megastar Foods and Avonmore Capital 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 Avonmore Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Megastar Foods and Avonmore Capital.

Diversification Opportunities for Megastar Foods and Avonmore Capital

0.87

Correlation Coefficient

Megastar Foods  Avonmore Capital

Very poor diversification

The 3 months correlation between Megastar and Avonmore is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Megastar Foods Limited and Avonmore Capital Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avonmore Capital Man 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 Avonmore Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avonmore Capital Man has no effect on the direction of Megastar Foods i.e., Megastar Foods and Avonmore Capital go up and down completely randomly.

Pair Corralation between Megastar Foods and Avonmore Capital

Assuming the 90 days trading horizon Megastar Foods Limited is expected to under-perform the Avonmore Capital. But the stock apears to be less risky and, when comparing its historical volatility, Megastar Foods Limited is 1.47 times less risky than Avonmore Capital. The stock trades about -0.05 of its potential returns per unit of risk. The Avonmore Capital Management is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,767  in Avonmore Capital Management on December 28, 2024 and sell it today you would lose (121.00) from holding Avonmore Capital Management or give up 6.85% of portfolio value over 90 days.

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

Megastar Foods Limited  vs.  Avonmore Capital Management

Megastar Foods

Risk-Adjusted Performance

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 latest uncertain performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Avonmore Capital Man

Risk-Adjusted Performance

Very Weak

Over the last 90 days Avonmore Capital Management has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Avonmore Capital is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Megastar Foods and Avonmore Capital

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

The idea behind Megastar Foods Limited and Avonmore Capital Management 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.