Correlation Between ADX and Notoria

Can any of the company-specific risk be diversified away by investing in both ADX and Notoria 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 ADX and Notoria into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ADX and Notoria, you can compare the effects of market volatilities on ADX and Notoria 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 ADX with a short position of Notoria. Check out your portfolio center. Please also check ongoing floating volatility patterns of ADX and Notoria.

Diversification Opportunities for ADX and Notoria

-0.45

Correlation Coefficient

ADX  Notoria

Very good diversification

The 3 months correlation between ADX and Notoria is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding ADX and Notoria in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Notoria and ADX 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 ADX are associated (or correlated) with Notoria. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Notoria has no effect on the direction of ADX i.e., ADX and Notoria go up and down completely randomly.

Pair Corralation between ADX and Notoria

Assuming the 90 days trading horizon ADX is expected to generate 1.49 times less return on investment than Notoria. In addition to that, ADX is 3.37 times more volatile than Notoria. It trades about 0.05 of its total potential returns per unit of risk. Notoria is currently generating about 0.24 per unit of volatility. If you would invest  830.00  in Notoria on December 30, 2024 and sell it today you would earn a total of  50.00  from holding Notoria or generate 6.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	25.86%
Values	Daily Returns

ADX  vs.  Notoria

ADX

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ADX are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, ADX reported solid returns over the last few months and may actually be approaching a breakup point.

Notoria

Risk-Adjusted Performance

Solid

Over the last 90 days Notoria has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively weak basic indicators, Notoria reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ADX and Notoria

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

The idea behind ADX and Notoria 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.