Correlation Between Megastar Foods and Rico Auto

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

Diversification Opportunities for Megastar Foods and Rico Auto

0.69

Correlation Coefficient

Megastar Foods  Rico Auto

Poor diversification

The 3 months correlation between Megastar and Rico is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Megastar Foods Limited and Rico Auto Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rico Auto 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 Rico Auto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rico Auto Industries has no effect on the direction of Megastar Foods i.e., Megastar Foods and Rico Auto go up and down completely randomly.

Pair Corralation between Megastar Foods and Rico Auto

Assuming the 90 days trading horizon Megastar Foods is expected to generate 1.89 times less return on investment than Rico Auto. But when comparing it to its historical volatility, Megastar Foods Limited is 1.66 times less risky than Rico Auto. It trades about 0.06 of its potential returns per unit of risk. Rico Auto Industries is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  9,482  in Rico Auto Industries on October 5, 2024 and sell it today you would earn a total of  441.00  from holding Rico Auto Industries or generate 4.65% return on investment over 90 days.

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

Megastar Foods Limited  vs.  Rico Auto Industries

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.

Rico Auto Industries

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Megastar Foods and Rico Auto

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

The idea behind Megastar Foods Limited and Rico Auto Industries 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..