Correlation Between Gujarat Lease and Megastar Foods

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

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

Diversification Opportunities for Gujarat Lease and Megastar Foods

-0.43

Correlation Coefficient

Gujarat Lease  Megastar Foods

Very good diversification

The 3 months correlation between Gujarat and Megastar is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Gujarat Lease Financing and Megastar Foods Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Megastar Foods and Gujarat Lease 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 Gujarat Lease Financing 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 Gujarat Lease i.e., Gujarat Lease and Megastar Foods go up and down completely randomly.

Pair Corralation between Gujarat Lease and Megastar Foods

Assuming the 90 days trading horizon Gujarat Lease Financing is expected to generate 0.9 times more return on investment than Megastar Foods. However, Gujarat Lease Financing is 1.12 times less risky than Megastar Foods. It trades about 0.08 of its potential returns per unit of risk. Megastar Foods Limited is currently generating about -0.07 per unit of risk. If you would invest  718.00  in Gujarat Lease Financing on September 19, 2024 and sell it today you would earn a total of  75.00  from holding Gujarat Lease Financing or generate 10.45% return on investment over 90 days.

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

Gujarat Lease Financing  vs.  Megastar Foods Limited

Gujarat Lease Financing

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Gujarat Lease Financing are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Gujarat Lease may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 latest uncertain performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Gujarat Lease and Megastar Foods

The main advantage of trading using opposite Gujarat Lease and Megastar Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gujarat Lease 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 Gujarat Lease Financing 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.