Correlation Between Megastar Foods and NRB Industrial

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

Diversification Opportunities for Megastar Foods and NRB Industrial

-0.28

Correlation Coefficient

Megastar Foods  NRB Industrial

Very good diversification

The 3 months correlation between Megastar and NRB is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Megastar Foods Limited and NRB Industrial Bearings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRB Industrial Bearings 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 NRB Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NRB Industrial Bearings has no effect on the direction of Megastar Foods i.e., Megastar Foods and NRB Industrial go up and down completely randomly.

Pair Corralation between Megastar Foods and NRB Industrial

Assuming the 90 days trading horizon Megastar Foods Limited is expected to generate 1.39 times more return on investment than NRB Industrial. However, Megastar Foods is 1.39 times more volatile than NRB Industrial Bearings. It trades about 0.04 of its potential returns per unit of risk. NRB Industrial Bearings is currently generating about 0.01 per unit of risk. If you would invest  23,850  in Megastar Foods Limited on October 26, 2024 and sell it today you would earn a total of  1,188  from holding Megastar Foods Limited or generate 4.98% 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.  NRB Industrial Bearings

Megastar Foods

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Megastar Foods Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Megastar Foods may actually be approaching a critical reversion point that can send shares even higher in February 2025.

NRB Industrial Bearings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NRB Industrial Bearings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, NRB Industrial is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Megastar Foods and NRB Industrial

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

The idea behind Megastar Foods Limited and NRB Industrial Bearings 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.