Correlation Between Megastar Foods and Fertilizers

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

Diversification Opportunities for Megastar Foods and Fertilizers

-0.04

Correlation Coefficient

Megastar Foods  Fertilizers

Good diversification

The 3 months correlation between Megastar and Fertilizers is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Megastar Foods Limited and Fertilizers and Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fertilizers and Chemicals 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 Fertilizers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fertilizers and Chemicals has no effect on the direction of Megastar Foods i.e., Megastar Foods and Fertilizers go up and down completely randomly.

Pair Corralation between Megastar Foods and Fertilizers

Assuming the 90 days trading horizon Megastar Foods Limited is expected to generate 1.63 times more return on investment than Fertilizers. However, Megastar Foods is 1.63 times more volatile than Fertilizers and Chemicals. It trades about 0.26 of its potential returns per unit of risk. Fertilizers and Chemicals is currently generating about -0.05 per unit of risk. If you would invest  23,308  in Megastar Foods Limited on October 10, 2024 and sell it today you would earn a total of  5,768  from holding Megastar Foods Limited or generate 24.75% return on investment over 90 days.

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

Megastar Foods Limited  vs.  Fertilizers and Chemicals

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.

Fertilizers and Chemicals

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fertilizers and Chemicals are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Fertilizers is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Megastar Foods and Fertilizers

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

The idea behind Megastar Foods Limited and Fertilizers and Chemicals 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .