Correlation Between Megastar Foods and Global Health

Can any of the company-specific risk be diversified away by investing in both Megastar Foods and Global Health 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 Global Health 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 Global Health Limited, you can compare the effects of market volatilities on Megastar Foods and Global Health 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 Global Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Megastar Foods and Global Health.

Diversification Opportunities for Megastar Foods and Global Health

-0.13

Correlation Coefficient

Megastar Foods  Global Health

Good diversification

The 3 months correlation between Megastar and Global is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Megastar Foods Limited and Global Health Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Health Limited 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 Global Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Health Limited has no effect on the direction of Megastar Foods i.e., Megastar Foods and Global Health go up and down completely randomly.

Pair Corralation between Megastar Foods and Global Health

Assuming the 90 days trading horizon Megastar Foods is expected to generate 1.21 times less return on investment than Global Health. In addition to that, Megastar Foods is 1.34 times more volatile than Global Health Limited. It trades about 0.07 of its total potential returns per unit of risk. Global Health Limited is currently generating about 0.11 per unit of volatility. If you would invest  107,195  in Global Health Limited on September 15, 2024 and sell it today you would earn a total of  4,260  from holding Global Health Limited or generate 3.97% return on investment over 90 days.

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

Megastar Foods Limited  vs.  Global Health Limited

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.

Global Health Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Global Health Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Global Health is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Megastar Foods and Global Health

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

The idea behind Megastar Foods Limited and Global Health 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.

Check out your portfolio center.

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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.