Correlation Between ADF Foods and HEG

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

Diversification Opportunities for ADF Foods and HEG

0.66

Correlation Coefficient

ADF Foods  HEG

Poor diversification

The 3 months correlation between ADF and HEG is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding ADF Foods Limited and HEG Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HEG 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 HEG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HEG Limited has no effect on the direction of ADF Foods i.e., ADF Foods and HEG go up and down completely randomly.

Pair Corralation between ADF Foods and HEG

Assuming the 90 days trading horizon ADF Foods Limited is expected to under-perform the HEG. But the stock apears to be less risky and, when comparing its historical volatility, ADF Foods Limited is 1.4 times less risky than HEG. The stock trades about -0.03 of its potential returns per unit of risk. The HEG Limited is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  43,420  in HEG Limited on October 24, 2024 and sell it today you would lose (1,030) from holding HEG Limited or give up 2.37% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

ADF Foods Limited  vs.  HEG Limited

ADF Foods Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ADF Foods Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, ADF Foods is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

HEG Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HEG Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, HEG is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with ADF Foods and HEG

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

The idea behind ADF Foods Limited and HEG 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.