Correlation Between Megastar Foods and Computer Age

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

Diversification Opportunities for Megastar Foods and Computer Age

-0.3

Correlation Coefficient

Megastar Foods  Computer Age

Very good diversification

The 3 months correlation between Megastar and Computer is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Megastar Foods Limited and Computer Age Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Computer Age Management 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 Computer Age. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Computer Age Management has no effect on the direction of Megastar Foods i.e., Megastar Foods and Computer Age go up and down completely randomly.

Pair Corralation between Megastar Foods and Computer Age

Assuming the 90 days trading horizon Megastar Foods is expected to generate 2.46 times less return on investment than Computer Age. In addition to that, Megastar Foods is 1.35 times more volatile than Computer Age Management. It trades about 0.02 of its total potential returns per unit of risk. Computer Age Management is currently generating about 0.08 per unit of volatility. If you would invest  223,781  in Computer Age Management on October 11, 2024 and sell it today you would earn a total of  247,014  from holding Computer Age Management or generate 110.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.79%
Values	Daily Returns

Megastar Foods Limited  vs.  Computer Age Management

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.

Computer Age Management

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Computer Age Management are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Computer Age is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Megastar Foods and Computer Age

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

The idea behind Megastar Foods Limited and Computer Age 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.

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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.