Correlation Between Patanjali Foods and Megastar Foods

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

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

Diversification Opportunities for Patanjali Foods and Megastar Foods

0.39

Correlation Coefficient

Patanjali Foods  Megastar Foods

Weak diversification

The 3 months correlation between Patanjali and Megastar is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Patanjali Foods Limited and Megastar Foods Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Megastar Foods and Patanjali 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 Patanjali Foods Limited 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 Patanjali Foods i.e., Patanjali Foods and Megastar Foods go up and down completely randomly.

Pair Corralation between Patanjali Foods and Megastar Foods

Assuming the 90 days trading horizon Patanjali Foods Limited is expected to generate 1.36 times more return on investment than Megastar Foods. However, Patanjali Foods is 1.36 times more volatile than Megastar Foods Limited. It trades about 0.06 of its potential returns per unit of risk. Megastar Foods Limited is currently generating about -0.3 per unit of risk. If you would invest  175,844  in Patanjali Foods Limited on August 31, 2024 and sell it today you would earn a total of  3,461  from holding Patanjali Foods Limited or generate 1.97% return on investment over 90 days.

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

Patanjali Foods Limited  vs.  Megastar Foods Limited

Patanjali Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Patanjali Foods Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady 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.

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.

Pair Trading with Patanjali Foods and Megastar Foods

The main advantage of trading using opposite Patanjali Foods and Megastar Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Patanjali Foods 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 Patanjali Foods Limited 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.