Correlation Between Allied Machinery and ADAMA

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

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

Diversification Opportunities for Allied Machinery and ADAMA

-0.44

Correlation Coefficient

Allied Machinery  ADAMA

Very good diversification

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

Pair Corralation between Allied Machinery and ADAMA

Assuming the 90 days trading horizon Allied Machinery Co is expected to generate 2.25 times more return on investment than ADAMA. However, Allied Machinery is 2.25 times more volatile than ADAMA. It trades about 0.05 of its potential returns per unit of risk. ADAMA is currently generating about -0.1 per unit of risk. If you would invest  1,878  in Allied Machinery Co on December 30, 2024 and sell it today you would earn a total of  122.00  from holding Allied Machinery Co or generate 6.5% return on investment over 90 days.

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

Allied Machinery Co  vs.  ADAMA

Allied Machinery

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Allied Machinery Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Allied Machinery sustained solid returns over the last few months and may actually be approaching a breakup point.

ADAMA

Risk-Adjusted Performance

Very Weak

Over the last 90 days ADAMA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Allied Machinery and ADAMA

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

The idea behind Allied Machinery Co and ADAMA 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.