Correlation Between Adamjee Insurance and National Foods

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

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

Diversification Opportunities for Adamjee Insurance and National Foods

-0.6

Correlation Coefficient

Adamjee Insurance  National Foods

Excellent diversification

The 3 months correlation between Adamjee and National is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Adamjee Insurance and National Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Foods and Adamjee Insurance 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 Adamjee Insurance are associated (or correlated) with National Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Foods has no effect on the direction of Adamjee Insurance i.e., Adamjee Insurance and National Foods go up and down completely randomly.

Pair Corralation between Adamjee Insurance and National Foods

Assuming the 90 days trading horizon Adamjee Insurance is expected to under-perform the National Foods. In addition to that, Adamjee Insurance is 1.31 times more volatile than National Foods. It trades about -0.03 of its total potential returns per unit of risk. National Foods is currently generating about 0.14 per unit of volatility. If you would invest  18,763  in National Foods on December 24, 2024 and sell it today you would earn a total of  2,952  from holding National Foods or generate 15.73% return on investment over 90 days.

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

Adamjee Insurance  vs.  National Foods

Adamjee Insurance

Risk-Adjusted Performance

Very Weak

Over the last 90 days Adamjee Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Adamjee Insurance is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

National Foods

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in National Foods are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, National Foods sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Adamjee Insurance and National Foods

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

The idea behind Adamjee Insurance and National Foods 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.