Correlation Between Electronics Mart and Meghmani Organics

Can any of the company-specific risk be diversified away by investing in both Electronics Mart and Meghmani Organics 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 Electronics Mart and Meghmani Organics into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Electronics Mart India and Meghmani Organics Limited, you can compare the effects of market volatilities on Electronics Mart and Meghmani Organics 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 Electronics Mart with a short position of Meghmani Organics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Electronics Mart and Meghmani Organics.

Diversification Opportunities for Electronics Mart and Meghmani Organics

0.7

Correlation Coefficient

Electronics Mart  Meghmani Organics

Poor diversification

The 3 months correlation between Electronics and Meghmani is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Electronics Mart India and Meghmani Organics Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meghmani Organics and Electronics Mart 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 Electronics Mart India are associated (or correlated) with Meghmani Organics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meghmani Organics has no effect on the direction of Electronics Mart i.e., Electronics Mart and Meghmani Organics go up and down completely randomly.

Pair Corralation between Electronics Mart and Meghmani Organics

Assuming the 90 days trading horizon Electronics Mart India is expected to generate 1.2 times more return on investment than Meghmani Organics. However, Electronics Mart is 1.2 times more volatile than Meghmani Organics Limited. It trades about 0.07 of its potential returns per unit of risk. Meghmani Organics Limited is currently generating about 0.0 per unit of risk. If you would invest  8,205  in Electronics Mart India on August 31, 2024 and sell it today you would earn a total of  9,802  from holding Electronics Mart India or generate 119.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.36%
Values	Daily Returns

Electronics Mart India  vs.  Meghmani Organics Limited

Electronics Mart India

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Electronics Mart India has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in December 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Meghmani Organics

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Electronics Mart and Meghmani Organics

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

The idea behind Electronics Mart India and Meghmani Organics 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.