Correlation Between Megastar Foods and Vinati Organics

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

Diversification Opportunities for Megastar Foods and Vinati Organics

-0.32

Correlation Coefficient

Megastar Foods  Vinati Organics

Very good diversification

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

Pair Corralation between Megastar Foods and Vinati Organics

Assuming the 90 days trading horizon Megastar Foods Limited is expected to generate 2.2 times more return on investment than Vinati Organics. However, Megastar Foods is 2.2 times more volatile than Vinati Organics Limited. It trades about 0.11 of its potential returns per unit of risk. Vinati Organics Limited is currently generating about 0.04 per unit of risk. If you would invest  22,994  in Megastar Foods Limited on October 25, 2024 and sell it today you would earn a total of  2,044  from holding Megastar Foods Limited or generate 8.89% 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.  Vinati Organics Limited

Megastar Foods

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Megastar Foods Limited are ranked lower than 2 (%) 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.

Vinati Organics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vinati Organics Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Megastar Foods and Vinati Organics

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

The idea behind Megastar Foods Limited and Vinati Organics 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.