Correlation Between ADF Foods and V2 Retail

Can any of the company-specific risk be diversified away by investing in both ADF Foods and V2 Retail 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 V2 Retail 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 V2 Retail Limited, you can compare the effects of market volatilities on ADF Foods and V2 Retail 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 V2 Retail. Check out your portfolio center. Please also check ongoing floating volatility patterns of ADF Foods and V2 Retail.

Diversification Opportunities for ADF Foods and V2 Retail

0.24

Correlation Coefficient

ADF Foods  V2 Retail

Modest diversification

The 3 months correlation between ADF and V2RETAIL is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding ADF Foods Limited and V2 Retail Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on V2 Retail Limited 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 V2 Retail. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of V2 Retail Limited has no effect on the direction of ADF Foods i.e., ADF Foods and V2 Retail go up and down completely randomly.

Pair Corralation between ADF Foods and V2 Retail

Assuming the 90 days trading horizon ADF Foods Limited is expected to under-perform the V2 Retail. In addition to that, ADF Foods is 1.03 times more volatile than V2 Retail Limited. It trades about -0.03 of its total potential returns per unit of risk. V2 Retail Limited is currently generating about 0.38 per unit of volatility. If you would invest  117,970  in V2 Retail Limited on October 11, 2024 and sell it today you would earn a total of  56,890  from holding V2 Retail Limited or generate 48.22% return on investment over 90 days.

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

ADF Foods Limited  vs.  V2 Retail Limited

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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

V2 Retail Limited

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in V2 Retail Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, V2 Retail demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ADF Foods and V2 Retail

The main advantage of trading using opposite ADF Foods and V2 Retail positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ADF Foods position performs unexpectedly, V2 Retail 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 V2 Retail will offset losses from the drop in V2 Retail's long position.

The idea behind ADF Foods Limited and V2 Retail 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.