Correlation Between ADF Foods and STEEL EXCHANGE

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

Diversification Opportunities for ADF Foods and STEEL EXCHANGE

0.39

Correlation Coefficient

ADF Foods  STEEL EXCHANGE

Weak diversification

The 3 months correlation between ADF and STEEL is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding ADF Foods Limited and STEEL EXCHANGE INDIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STEEL EXCHANGE INDIA 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 STEEL EXCHANGE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STEEL EXCHANGE INDIA has no effect on the direction of ADF Foods i.e., ADF Foods and STEEL EXCHANGE go up and down completely randomly.

Pair Corralation between ADF Foods and STEEL EXCHANGE

Assuming the 90 days trading horizon ADF Foods Limited is expected to generate 1.23 times more return on investment than STEEL EXCHANGE. However, ADF Foods is 1.23 times more volatile than STEEL EXCHANGE INDIA. It trades about -0.01 of its potential returns per unit of risk. STEEL EXCHANGE INDIA is currently generating about -0.06 per unit of risk. If you would invest  28,129  in ADF Foods Limited on October 22, 2024 and sell it today you would lose (1,084) from holding ADF Foods Limited or give up 3.85% of portfolio value over 90 days.

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

ADF Foods Limited  vs.  STEEL EXCHANGE INDIA

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 rather sound basic indicators, ADF Foods is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

STEEL EXCHANGE INDIA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STEEL EXCHANGE INDIA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's forward indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with ADF Foods and STEEL EXCHANGE

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

The idea behind ADF Foods Limited and STEEL EXCHANGE INDIA 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..