Correlation Between V2 Retail and Megastar Foods

Can any of the company-specific risk be diversified away by investing in both V2 Retail 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 V2 Retail and Megastar Foods into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between V2 Retail Limited and Megastar Foods Limited, you can compare the effects of market volatilities on V2 Retail 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 V2 Retail with a short position of Megastar Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of V2 Retail and Megastar Foods.

Diversification Opportunities for V2 Retail and Megastar Foods

-0.17

Correlation Coefficient

V2 Retail  Megastar Foods

Good diversification

The 3 months correlation between V2RETAIL and Megastar is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding V2 Retail 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 V2 Retail 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 V2 Retail 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 V2 Retail i.e., V2 Retail and Megastar Foods go up and down completely randomly.

Pair Corralation between V2 Retail and Megastar Foods

Assuming the 90 days trading horizon V2 Retail Limited is expected to generate 1.02 times more return on investment than Megastar Foods. However, V2 Retail is 1.02 times more volatile than Megastar Foods Limited. It trades about 0.37 of its potential returns per unit of risk. Megastar Foods Limited is currently generating about -0.01 per unit of risk. If you would invest  135,525  in V2 Retail Limited on September 29, 2024 and sell it today you would earn a total of  27,160  from holding V2 Retail Limited or generate 20.04% return on investment over 90 days.

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

V2 Retail Limited  vs.  Megastar Foods Limited

V2 Retail Limited

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in V2 Retail Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, V2 Retail demonstrated solid returns over the last few months and may actually be approaching a breakup point.

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 abnormal 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.

Pair Trading with V2 Retail and Megastar Foods

The main advantage of trading using opposite V2 Retail and Megastar Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if V2 Retail 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 V2 Retail 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.