Correlation Between ADF Foods and Lotus Eye

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

Diversification Opportunities for ADF Foods and Lotus Eye

0.78

Correlation Coefficient

ADF Foods  Lotus Eye

Poor diversification

The 3 months correlation between ADF and Lotus is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding ADF Foods Limited and Lotus Eye Hospital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lotus Eye Hospital 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 Lotus Eye. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lotus Eye Hospital has no effect on the direction of ADF Foods i.e., ADF Foods and Lotus Eye go up and down completely randomly.

Pair Corralation between ADF Foods and Lotus Eye

Assuming the 90 days trading horizon ADF Foods Limited is expected to under-perform the Lotus Eye. In addition to that, ADF Foods is 1.06 times more volatile than Lotus Eye Hospital. It trades about -0.11 of its total potential returns per unit of risk. Lotus Eye Hospital is currently generating about 0.05 per unit of volatility. If you would invest  6,619  in Lotus Eye Hospital on December 26, 2024 and sell it today you would earn a total of  438.00  from holding Lotus Eye Hospital or generate 6.62% return on investment over 90 days.

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

ADF Foods Limited  vs.  Lotus Eye Hospital

ADF Foods Limited

Risk-Adjusted Performance

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 unfluctuating performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Lotus Eye Hospital

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lotus Eye Hospital are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain technical and fundamental indicators, Lotus Eye may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with ADF Foods and Lotus Eye

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

The idea behind ADF Foods Limited and Lotus Eye Hospital 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.