Correlation Between Mughal Iron and Matco Foods

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Can any of the company-specific risk be diversified away by investing in both Mughal Iron and Matco Foods 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 Mughal Iron and Matco Foods into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Mughal Iron Steel and Matco Foods, you can compare the effects of market volatilities on Mughal Iron and Matco Foods 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 Mughal Iron with a short position of Matco Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mughal Iron and Matco Foods.

Diversification Opportunities for Mughal Iron and Matco Foods

0.27
  Correlation Coefficient

Modest diversification

The 3 months correlation between Mughal and Matco is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Mughal Iron Steel and Matco Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Matco Foods and Mughal Iron 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 Mughal Iron Steel are associated (or correlated) with Matco Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Matco Foods has no effect on the direction of Mughal Iron i.e., Mughal Iron and Matco Foods go up and down completely randomly.

Pair Corralation between Mughal Iron and Matco Foods

Assuming the 90 days trading horizon Mughal Iron Steel is expected to under-perform the Matco Foods. But the stock apears to be less risky and, when comparing its historical volatility, Mughal Iron Steel is 1.36 times less risky than Matco Foods. The stock trades about -0.01 of its potential returns per unit of risk. The Matco Foods is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  3,716  in Matco Foods on October 10, 2024 and sell it today you would earn a total of  764.00  from holding Matco Foods or generate 20.56% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy95.24%
ValuesDaily Returns

Mughal Iron Steel  vs.  Matco Foods

 Performance 
       Timeline  
Mughal Iron Steel 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Mughal Iron Steel are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical indicators, Mughal Iron is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Matco Foods 

Risk-Adjusted Performance

22 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Matco Foods are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Matco Foods reported solid returns over the last few months and may actually be approaching a breakup point.

Mughal Iron and Matco Foods Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Mughal Iron and Matco Foods

The main advantage of trading using opposite Mughal Iron and Matco Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mughal Iron position performs unexpectedly, Matco Foods 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 Matco Foods will offset losses from the drop in Matco Foods' long position.
The idea behind Mughal Iron Steel and Matco Foods 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.

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