Correlation Between Megastar Foods and NMDC

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

Diversification Opportunities for Megastar Foods and NMDC

-0.32

Correlation Coefficient

Megastar Foods  NMDC

Very good diversification

The 3 months correlation between Megastar and NMDC is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Megastar Foods Limited and NMDC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMDC Limited 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 NMDC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NMDC Limited has no effect on the direction of Megastar Foods i.e., Megastar Foods and NMDC go up and down completely randomly.

Pair Corralation between Megastar Foods and NMDC

Assuming the 90 days trading horizon Megastar Foods Limited is expected to generate 1.36 times more return on investment than NMDC. However, Megastar Foods is 1.36 times more volatile than NMDC Limited. It trades about -0.03 of its potential returns per unit of risk. NMDC Limited is currently generating about -0.13 per unit of risk. If you would invest  23,728  in Megastar Foods Limited on December 4, 2024 and sell it today you would lose (2,184) from holding Megastar Foods Limited or give up 9.2% of portfolio value over 90 days.

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

Megastar Foods Limited  vs.  NMDC Limited

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 weak 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.

NMDC Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days NMDC Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Megastar Foods and NMDC

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

The idea behind Megastar Foods Limited and NMDC 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.