Correlation Between ADF Foods and BF Utilities

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

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

Diversification Opportunities for ADF Foods and BF Utilities

0.21

Correlation Coefficient

ADF Foods  BF Utilities

Modest diversification

The 3 months correlation between ADF and BFUTILITIE is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding ADF Foods Limited and BF Utilities Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BF Utilities Limited and ADF 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 ADF Foods Limited are associated (or correlated) with BF Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BF Utilities Limited has no effect on the direction of ADF Foods i.e., ADF Foods and BF Utilities go up and down completely randomly.

Pair Corralation between ADF Foods and BF Utilities

Assuming the 90 days trading horizon ADF Foods Limited is expected to under-perform the BF Utilities. But the stock apears to be less risky and, when comparing its historical volatility, ADF Foods Limited is 1.17 times less risky than BF Utilities. The stock trades about -0.24 of its potential returns per unit of risk. The BF Utilities Limited is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  97,340  in BF Utilities Limited on October 4, 2024 and sell it today you would earn a total of  410.00  from holding BF Utilities Limited or generate 0.42% return on investment over 90 days.

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

ADF Foods Limited  vs.  BF Utilities Limited

ADF Foods Limited

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ADF Foods Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, ADF Foods may actually be approaching a critical reversion point that can send shares even higher in February 2025.

BF Utilities Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BF Utilities Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, BF Utilities is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with ADF Foods and BF Utilities

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

The idea behind ADF Foods Limited and BF Utilities 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..