Correlation Between ADF Foods and Delta Manufacturing

Can any of the company-specific risk be diversified away by investing in both ADF Foods and Delta Manufacturing 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 Delta Manufacturing 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 Delta Manufacturing Limited, you can compare the effects of market volatilities on ADF Foods and Delta Manufacturing 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 Delta Manufacturing. Check out your portfolio center. Please also check ongoing floating volatility patterns of ADF Foods and Delta Manufacturing.

Diversification Opportunities for ADF Foods and Delta Manufacturing

0.65

Correlation Coefficient

ADF Foods  Delta Manufacturing

Poor diversification

The 3 months correlation between ADF and Delta is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding ADF Foods Limited and Delta Manufacturing Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Delta Manufacturing 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 Delta Manufacturing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Delta Manufacturing has no effect on the direction of ADF Foods i.e., ADF Foods and Delta Manufacturing go up and down completely randomly.

Pair Corralation between ADF Foods and Delta Manufacturing

Assuming the 90 days trading horizon ADF Foods is expected to generate 1.38 times less return on investment than Delta Manufacturing. But when comparing it to its historical volatility, ADF Foods Limited is 1.03 times less risky than Delta Manufacturing. It trades about 0.07 of its potential returns per unit of risk. Delta Manufacturing Limited is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  10,361  in Delta Manufacturing Limited on September 12, 2024 and sell it today you would earn a total of  1,943  from holding Delta Manufacturing Limited or generate 18.75% return on investment over 90 days.

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

ADF Foods Limited  vs.  Delta Manufacturing Limited

ADF Foods Limited

Risk-Adjusted Performance

5 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ADF Foods Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, ADF Foods exhibited solid returns over the last few months and may actually be approaching a breakup point.

Delta Manufacturing

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Delta Manufacturing Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady technical and fundamental indicators, Delta Manufacturing sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ADF Foods and Delta Manufacturing

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

The idea behind ADF Foods Limited and Delta Manufacturing 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.

Check out your portfolio center.

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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.