Correlation Between Coffee Day and Megastar Foods

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

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

Diversification Opportunities for Coffee Day and Megastar Foods

0.5

Correlation Coefficient

Coffee Day  Megastar Foods

Very weak diversification

The 3 months correlation between Coffee and Megastar is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Coffee Day Enterprises and Megastar Foods Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Megastar Foods and Coffee Day 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 Coffee Day Enterprises 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 Coffee Day i.e., Coffee Day and Megastar Foods go up and down completely randomly.

Pair Corralation between Coffee Day and Megastar Foods

Assuming the 90 days trading horizon Coffee Day Enterprises is expected to under-perform the Megastar Foods. In addition to that, Coffee Day is 1.2 times more volatile than Megastar Foods Limited. It trades about -0.3 of its total potential returns per unit of risk. Megastar Foods Limited is currently generating about -0.16 per unit of volatility. If you would invest  28,160  in Megastar Foods Limited on September 28, 2024 and sell it today you would lose (5,557) from holding Megastar Foods Limited or give up 19.73% of portfolio value over 90 days.

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

Coffee Day Enterprises  vs.  Megastar Foods Limited

Coffee Day Enterprises

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Coffee Day Enterprises has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm 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 abnormal performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Coffee Day and Megastar Foods

The main advantage of trading using opposite Coffee Day and Megastar Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coffee Day 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 Coffee Day Enterprises 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.