Correlation Between Punjab National and Megastar Foods

Can any of the company-specific risk be diversified away by investing in both Punjab National and Megastar 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 Punjab National and Megastar Foods into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Punjab National Bank and Megastar Foods Limited, you can compare the effects of market volatilities on Punjab National and Megastar 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 Punjab National with a short position of Megastar Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Punjab National and Megastar Foods.

Diversification Opportunities for Punjab National and Megastar Foods

0.15

Correlation Coefficient

Punjab National  Megastar Foods

Average diversification

The 3 months correlation between Punjab and Megastar is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Punjab National Bank and Megastar Foods Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Megastar Foods and Punjab National 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 Punjab National Bank are associated (or correlated) with Megastar Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Megastar Foods has no effect on the direction of Punjab National i.e., Punjab National and Megastar Foods go up and down completely randomly.

Pair Corralation between Punjab National and Megastar Foods

Assuming the 90 days trading horizon Punjab National Bank is expected to generate 0.82 times more return on investment than Megastar Foods. However, Punjab National Bank is 1.22 times less risky than Megastar Foods. It trades about 0.07 of its potential returns per unit of risk. Megastar Foods Limited is currently generating about -0.02 per unit of risk. If you would invest  6,068  in Punjab National Bank on October 4, 2024 and sell it today you would earn a total of  4,210  from holding Punjab National Bank or generate 69.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.73%
Values	Daily Returns

Punjab National Bank  vs.  Megastar Foods Limited

Punjab National Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Punjab National Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Punjab National is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Punjab National and Megastar Foods

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

The idea behind Punjab National Bank and Megastar Foods 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.