Correlation Between ADF Foods and Fortis Healthcare

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

Diversification Opportunities for ADF Foods and Fortis Healthcare

0.65

Correlation Coefficient

ADF Foods  Fortis Healthcare

Poor diversification

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

Pair Corralation between ADF Foods and Fortis Healthcare

Assuming the 90 days trading horizon ADF Foods is expected to generate 1.84 times less return on investment than Fortis Healthcare. In addition to that, ADF Foods is 1.65 times more volatile than Fortis Healthcare Limited. It trades about 0.06 of its total potential returns per unit of risk. Fortis Healthcare Limited is currently generating about 0.18 per unit of volatility. If you would invest  58,005  in Fortis Healthcare Limited on October 5, 2024 and sell it today you would earn a total of  13,775  from holding Fortis Healthcare Limited or generate 23.75% 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.  Fortis Healthcare Limited

ADF Foods Limited

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ADF Foods Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, ADF Foods exhibited solid returns over the last few months and may actually be approaching a breakup point.

Fortis Healthcare

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fortis Healthcare Limited are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Fortis Healthcare sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ADF Foods and Fortis Healthcare

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

The idea behind ADF Foods Limited and Fortis Healthcare 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.