Correlation Between Megastar Foods and Vishnu Chemicals

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

Diversification Opportunities for Megastar Foods and Vishnu Chemicals

-0.45

Correlation Coefficient

Megastar Foods  Vishnu Chemicals

Very good diversification

The 3 months correlation between Megastar and Vishnu is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Megastar Foods Limited and Vishnu Chemicals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vishnu Chemicals 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 Vishnu Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vishnu Chemicals has no effect on the direction of Megastar Foods i.e., Megastar Foods and Vishnu Chemicals go up and down completely randomly.

Pair Corralation between Megastar Foods and Vishnu Chemicals

Assuming the 90 days trading horizon Megastar Foods Limited is expected to under-perform the Vishnu Chemicals. In addition to that, Megastar Foods is 1.28 times more volatile than Vishnu Chemicals Limited. It trades about -0.03 of its total potential returns per unit of risk. Vishnu Chemicals Limited is currently generating about 0.1 per unit of volatility. If you would invest  39,330  in Vishnu Chemicals Limited on December 26, 2024 and sell it today you would earn a total of  5,950  from holding Vishnu Chemicals Limited or generate 15.13% return on investment over 90 days.

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

Megastar Foods Limited  vs.  Vishnu Chemicals 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.

Vishnu Chemicals

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vishnu Chemicals Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady technical indicators, Vishnu Chemicals sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Megastar Foods and Vishnu Chemicals

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

The idea behind Megastar Foods Limited and Vishnu Chemicals 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.