Correlation Between ADF Foods and Motisons Jewellers

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

Diversification Opportunities for ADF Foods and Motisons Jewellers

-0.46

Correlation Coefficient

ADF Foods  Motisons Jewellers

Very good diversification

The 3 months correlation between ADF and Motisons is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding ADF Foods Limited and Motisons Jewellers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Motisons Jewellers 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 Motisons Jewellers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Motisons Jewellers has no effect on the direction of ADF Foods i.e., ADF Foods and Motisons Jewellers go up and down completely randomly.

Pair Corralation between ADF Foods and Motisons Jewellers

Assuming the 90 days trading horizon ADF Foods Limited is expected to generate 1.41 times more return on investment than Motisons Jewellers. However, ADF Foods is 1.41 times more volatile than Motisons Jewellers. It trades about 0.05 of its potential returns per unit of risk. Motisons Jewellers is currently generating about -0.17 per unit of risk. If you would invest  30,525  in ADF Foods Limited on September 26, 2024 and sell it today you would earn a total of  600.00  from holding ADF Foods Limited or generate 1.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

ADF Foods Limited  vs.  Motisons Jewellers

ADF Foods Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ADF Foods Limited are ranked lower than 6 (%) 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.

Motisons Jewellers

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Motisons Jewellers has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with ADF Foods and Motisons Jewellers

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

The idea behind ADF Foods Limited and Motisons Jewellers 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.