Correlation Between Dodla Dairy and ADF Foods

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

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

Diversification Opportunities for Dodla Dairy and ADF Foods

0.48

Correlation Coefficient

Dodla Dairy  ADF Foods

Very weak diversification

The 3 months correlation between Dodla and ADF is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Dodla Dairy Limited and ADF Foods Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ADF Foods Limited and Dodla Dairy 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 Dodla Dairy Limited are associated (or correlated) with ADF Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ADF Foods Limited has no effect on the direction of Dodla Dairy i.e., Dodla Dairy and ADF Foods go up and down completely randomly.

Pair Corralation between Dodla Dairy and ADF Foods

Assuming the 90 days trading horizon Dodla Dairy Limited is expected to under-perform the ADF Foods. But the stock apears to be less risky and, when comparing its historical volatility, Dodla Dairy Limited is 1.44 times less risky than ADF Foods. The stock trades about -0.1 of its potential returns per unit of risk. The ADF Foods Limited is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  30,749  in ADF Foods Limited on October 17, 2024 and sell it today you would lose (3,714) from holding ADF Foods Limited or give up 12.08% of portfolio value over 90 days.

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

Dodla Dairy Limited  vs.  ADF Foods Limited

Dodla Dairy Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dodla Dairy Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

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 latest weak performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Dodla Dairy and ADF Foods

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

The idea behind Dodla Dairy Limited and ADF Foods 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.