Correlation Between Megastar Foods and Refex Industries

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

Diversification Opportunities for Megastar Foods and Refex Industries

0.66

Correlation Coefficient

Megastar Foods  Refex Industries

Poor diversification

The 3 months correlation between Megastar and Refex is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Megastar Foods Limited and Refex Industries Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Refex Industries 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 Refex Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Refex Industries has no effect on the direction of Megastar Foods i.e., Megastar Foods and Refex Industries go up and down completely randomly.

Pair Corralation between Megastar Foods and Refex Industries

Assuming the 90 days trading horizon Megastar Foods Limited is expected to generate 1.1 times more return on investment than Refex Industries. However, Megastar Foods is 1.1 times more volatile than Refex Industries Limited. It trades about -0.02 of its potential returns per unit of risk. Refex Industries Limited is currently generating about -0.13 per unit of risk. If you would invest  22,155  in Megastar Foods Limited on December 27, 2024 and sell it today you would lose (1,681) from holding Megastar Foods Limited or give up 7.59% of portfolio value over 90 days.

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

Megastar Foods Limited  vs.  Refex Industries 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 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.

Refex Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days Refex Industries Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Megastar Foods and Refex Industries

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

The idea behind Megastar Foods Limited and Refex Industries 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.