Correlation Between Megastar Foods and Rainbow Childrens

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

Diversification Opportunities for Megastar Foods and Rainbow Childrens

-0.56

Correlation Coefficient

Megastar Foods  Rainbow Childrens

Excellent diversification

The 3 months correlation between Megastar and Rainbow is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Megastar Foods Limited and Rainbow Childrens Medicare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rainbow Childrens 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 Rainbow Childrens. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rainbow Childrens has no effect on the direction of Megastar Foods i.e., Megastar Foods and Rainbow Childrens go up and down completely randomly.

Pair Corralation between Megastar Foods and Rainbow Childrens

Assuming the 90 days trading horizon Megastar Foods is expected to generate 2.93 times less return on investment than Rainbow Childrens. In addition to that, Megastar Foods is 1.27 times more volatile than Rainbow Childrens Medicare. It trades about 0.02 of its total potential returns per unit of risk. Rainbow Childrens Medicare is currently generating about 0.09 per unit of volatility. If you would invest  71,728  in Rainbow Childrens Medicare on October 5, 2024 and sell it today you would earn a total of  84,097  from holding Rainbow Childrens Medicare or generate 117.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.78%
Values	Daily Returns

Megastar Foods Limited  vs.  Rainbow Childrens Medicare

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 somewhat strong basic indicators, Megastar Foods is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Rainbow Childrens

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rainbow Childrens Medicare are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady fundamental drivers, Rainbow Childrens showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Megastar Foods and Rainbow Childrens

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

The idea behind Megastar Foods Limited and Rainbow Childrens Medicare 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.