Correlation Between ADF Foods and Indian Railway

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

Diversification Opportunities for ADF Foods and Indian Railway

0.26

Correlation Coefficient

ADF Foods  Indian Railway

Modest diversification

The 3 months correlation between ADF and Indian is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding ADF Foods Limited and Indian Railway Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indian Railway Finance 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 Indian Railway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indian Railway Finance has no effect on the direction of ADF Foods i.e., ADF Foods and Indian Railway go up and down completely randomly.

Pair Corralation between ADF Foods and Indian Railway

Assuming the 90 days trading horizon ADF Foods Limited is expected to generate 1.1 times more return on investment than Indian Railway. However, ADF Foods is 1.1 times more volatile than Indian Railway Finance. It trades about 0.08 of its potential returns per unit of risk. Indian Railway Finance is currently generating about 0.03 per unit of risk. If you would invest  30,525  in ADF Foods Limited on September 24, 2024 and sell it today you would earn a total of  1,090  from holding ADF Foods Limited or generate 3.57% 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.  Indian Railway Finance

ADF Foods Limited

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ADF Foods Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, ADF Foods exhibited solid returns over the last few months and may actually be approaching a breakup point.

Indian Railway Finance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Indian Railway Finance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Indian Railway is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with ADF Foods and Indian Railway

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

The idea behind ADF Foods Limited and Indian Railway Finance 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.