Correlation Between ADF Foods and Mangalore Chemicals

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

Diversification Opportunities for ADF Foods and Mangalore Chemicals

0.75

Correlation Coefficient

ADF Foods  Mangalore Chemicals

Poor diversification

The 3 months correlation between ADF and Mangalore is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding ADF Foods Limited and Mangalore Chemicals Fertilizer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mangalore Chemicals 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 Mangalore Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mangalore Chemicals has no effect on the direction of ADF Foods i.e., ADF Foods and Mangalore Chemicals go up and down completely randomly.

Pair Corralation between ADF Foods and Mangalore Chemicals

Assuming the 90 days trading horizon ADF Foods Limited is expected to under-perform the Mangalore Chemicals. But the stock apears to be less risky and, when comparing its historical volatility, ADF Foods Limited is 1.07 times less risky than Mangalore Chemicals. The stock trades about -0.33 of its potential returns per unit of risk. The Mangalore Chemicals Fertilizers is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  16,349  in Mangalore Chemicals Fertilizers on October 9, 2024 and sell it today you would earn a total of  139.00  from holding Mangalore Chemicals Fertilizers or generate 0.85% 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.  Mangalore Chemicals Fertilizer

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 latest unsteady performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Mangalore Chemicals

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mangalore Chemicals Fertilizers are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, Mangalore Chemicals exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ADF Foods and Mangalore Chemicals

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

The idea behind ADF Foods Limited and Mangalore Chemicals Fertilizers 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.