Correlation Between Music Broadcast and Megastar Foods

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

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

Diversification Opportunities for Music Broadcast and Megastar Foods

0.8

Correlation Coefficient

Music Broadcast  Megastar Foods

Very poor diversification

The 3 months correlation between Music and Megastar is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Music Broadcast Limited and Megastar Foods Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Megastar Foods and Music Broadcast 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 Music Broadcast Limited 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 Music Broadcast i.e., Music Broadcast and Megastar Foods go up and down completely randomly.

Pair Corralation between Music Broadcast and Megastar Foods

Assuming the 90 days trading horizon Music Broadcast is expected to generate 1.08 times less return on investment than Megastar Foods. But when comparing it to its historical volatility, Music Broadcast Limited is 1.06 times less risky than Megastar Foods. It trades about 0.02 of its potential returns per unit of risk. Megastar Foods Limited is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  21,505  in Megastar Foods Limited on October 5, 2024 and sell it today you would earn a total of  2,867  from holding Megastar Foods Limited or generate 13.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.78%
Values	Daily Returns

Music Broadcast Limited  vs.  Megastar Foods Limited

Music Broadcast

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Music Broadcast Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in February 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

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.

Pair Trading with Music Broadcast and Megastar Foods

The main advantage of trading using opposite Music Broadcast and Megastar Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Music Broadcast 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 Music Broadcast Limited 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.