Correlation Between ADF Foods and Vedanta

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

Diversification Opportunities for ADF Foods and Vedanta

0.23

Correlation Coefficient

ADF Foods  Vedanta

Modest diversification

The 3 months correlation between ADF and Vedanta is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding ADF Foods Limited and Vedanta Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vedanta 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 Vedanta. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vedanta Limited has no effect on the direction of ADF Foods i.e., ADF Foods and Vedanta go up and down completely randomly.

Pair Corralation between ADF Foods and Vedanta

Assuming the 90 days trading horizon ADF Foods is expected to generate 1.21 times less return on investment than Vedanta. In addition to that, ADF Foods is 1.3 times more volatile than Vedanta Limited. It trades about 0.08 of its total potential returns per unit of risk. Vedanta Limited is currently generating about 0.13 per unit of volatility. If you would invest  24,383  in Vedanta Limited on October 7, 2024 and sell it today you would earn a total of  21,442  from holding Vedanta Limited or generate 87.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.55%
Values	Daily Returns

ADF Foods Limited  vs.  Vedanta 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 unsteady basic indicators, ADF Foods exhibited solid returns over the last few months and may actually be approaching a breakup point.

Vedanta Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vedanta Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Vedanta is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with ADF Foods and Vedanta

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

The idea behind ADF Foods Limited and Vedanta 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.