Correlation Between Megastar Foods and Manaksia Steels

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

Diversification Opportunities for Megastar Foods and Manaksia Steels

0.59

Correlation Coefficient

Megastar Foods  Manaksia Steels

Very weak diversification

The 3 months correlation between Megastar and Manaksia is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Megastar Foods Limited and Manaksia Steels Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Manaksia Steels 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 Manaksia Steels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Manaksia Steels has no effect on the direction of Megastar Foods i.e., Megastar Foods and Manaksia Steels go up and down completely randomly.

Pair Corralation between Megastar Foods and Manaksia Steels

Assuming the 90 days trading horizon Megastar Foods Limited is expected to generate 1.5 times more return on investment than Manaksia Steels. However, Megastar Foods is 1.5 times more volatile than Manaksia Steels Limited. It trades about 0.08 of its potential returns per unit of risk. Manaksia Steels Limited is currently generating about -0.06 per unit of risk. If you would invest  22,235  in Megastar Foods Limited on September 27, 2024 and sell it today you would earn a total of  759.00  from holding Megastar Foods Limited or generate 3.41% return on investment over 90 days.

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

Megastar Foods Limited  vs.  Manaksia Steels Limited

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 unsteady performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Manaksia Steels

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Manaksia Steels Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Megastar Foods and Manaksia Steels

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

The idea behind Megastar Foods Limited and Manaksia Steels Limited 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.