Correlation Between Megastar Foods and Sapphire Foods

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

Diversification Opportunities for Megastar Foods and Sapphire Foods

0.33

Correlation Coefficient

Megastar Foods  Sapphire Foods

Weak diversification

The 3 months correlation between Megastar and Sapphire is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Megastar Foods Limited and Sapphire Foods India in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sapphire Foods India 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 Sapphire Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sapphire Foods India has no effect on the direction of Megastar Foods i.e., Megastar Foods and Sapphire Foods go up and down completely randomly.

Pair Corralation between Megastar Foods and Sapphire Foods

Assuming the 90 days trading horizon Megastar Foods Limited is expected to under-perform the Sapphire Foods. In addition to that, Megastar Foods is 1.16 times more volatile than Sapphire Foods India. It trades about -0.2 of its total potential returns per unit of risk. Sapphire Foods India is currently generating about 0.0 per unit of volatility. If you would invest  33,087  in Sapphire Foods India on August 31, 2024 and sell it today you would lose (557.00) from holding Sapphire Foods India or give up 1.68% of portfolio value over 90 days.

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

Megastar Foods Limited  vs.  Sapphire Foods India

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 December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Sapphire Foods India

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sapphire Foods India has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward indicators, Sapphire Foods is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Megastar Foods and Sapphire Foods

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

The idea behind Megastar Foods Limited and Sapphire Foods India 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.