Correlation Between Megastar Foods and Gujarat Lease

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

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

Diversification Opportunities for Megastar Foods and Gujarat Lease

-0.44

Correlation Coefficient

Megastar Foods  Gujarat Lease

Very good diversification

The 3 months correlation between Megastar and Gujarat is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Megastar Foods Limited and Gujarat Lease Financing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gujarat Lease Financing and Megastar Foods 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 Megastar Foods Limited are associated (or correlated) with Gujarat Lease. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gujarat Lease Financing has no effect on the direction of Megastar Foods i.e., Megastar Foods and Gujarat Lease go up and down completely randomly.

Pair Corralation between Megastar Foods and Gujarat Lease

Assuming the 90 days trading horizon Megastar Foods Limited is expected to under-perform the Gujarat Lease. In addition to that, Megastar Foods is 1.11 times more volatile than Gujarat Lease Financing. It trades about -0.08 of its total potential returns per unit of risk. Gujarat Lease Financing is currently generating about 0.06 per unit of volatility. If you would invest  720.00  in Gujarat Lease Financing on September 20, 2024 and sell it today you would earn a total of  57.00  from holding Gujarat Lease Financing or generate 7.92% return on investment over 90 days.

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

Megastar Foods Limited  vs.  Gujarat Lease Financing

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 unfluctuating 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.

Gujarat Lease Financing

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Gujarat Lease Financing are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Gujarat Lease may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Megastar Foods and Gujarat Lease

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

The idea behind Megastar Foods Limited and Gujarat Lease Financing 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.