Correlation Between ADF Foods and Music Broadcast

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

Diversification Opportunities for ADF Foods and Music Broadcast

-0.33

Correlation Coefficient

ADF Foods  Music Broadcast

Very good diversification

The 3 months correlation between ADF and Music is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding ADF Foods Limited and Music Broadcast Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Music Broadcast 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 Music Broadcast. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Music Broadcast has no effect on the direction of ADF Foods i.e., ADF Foods and Music Broadcast go up and down completely randomly.

Pair Corralation between ADF Foods and Music Broadcast

Assuming the 90 days trading horizon ADF Foods Limited is expected to generate 10.47 times more return on investment than Music Broadcast. However, ADF Foods is 10.47 times more volatile than Music Broadcast Limited. It trades about 0.06 of its potential returns per unit of risk. Music Broadcast Limited is currently generating about 0.02 per unit of risk. If you would invest  13,713  in ADF Foods Limited on October 5, 2024 and sell it today you would earn a total of  15,512  from holding ADF Foods Limited or generate 113.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.78%
Values	Daily Returns

ADF Foods Limited  vs.  Music Broadcast Limited

ADF Foods Limited

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ADF Foods Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, ADF Foods exhibited solid returns over the last few months and may actually be approaching a breakup point.

Music Broadcast

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Music Broadcast Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in February 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with ADF Foods and Music Broadcast

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

The idea behind ADF Foods Limited and Music Broadcast 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.

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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.