Correlation Between ADF Foods and Dodla Dairy

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

Diversification Opportunities for ADF Foods and Dodla Dairy

0.56

Correlation Coefficient

ADF Foods  Dodla Dairy

Very weak diversification

The 3 months correlation between ADF and Dodla is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding ADF Foods Limited and Dodla Dairy Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dodla Dairy 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 Dodla Dairy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dodla Dairy Limited has no effect on the direction of ADF Foods i.e., ADF Foods and Dodla Dairy go up and down completely randomly.

Pair Corralation between ADF Foods and Dodla Dairy

Assuming the 90 days trading horizon ADF Foods Limited is expected to generate 10.79 times more return on investment than Dodla Dairy. However, ADF Foods is 10.79 times more volatile than Dodla Dairy Limited. It trades about 0.06 of its potential returns per unit of risk. Dodla Dairy Limited is currently generating about 0.08 per unit of risk. If you would invest  14,670  in ADF Foods Limited on September 28, 2024 and sell it today you would earn a total of  15,470  from holding ADF Foods Limited or generate 105.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.81%
Values	Daily Returns

ADF Foods Limited  vs.  Dodla Dairy Limited

ADF Foods Limited

Risk-Adjusted Performance

5 of 100

Modest

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 conflicting basic indicators, ADF Foods exhibited solid returns over the last few months and may actually be approaching a breakup point.

Dodla Dairy Limited

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dodla Dairy Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Dodla Dairy is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with ADF Foods and Dodla Dairy

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

The idea behind ADF Foods Limited and Dodla Dairy 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.