Correlation Between ADF and Algoma Central

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

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

Diversification Opportunities for ADF and Algoma Central

-0.81

Correlation Coefficient

ADF  Algoma Central

Pay attention - limited upside

The 3 months correlation between ADF and Algoma is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding ADF Group and Algoma Central in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Algoma Central and ADF 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 Group are associated (or correlated) with Algoma Central. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Algoma Central has no effect on the direction of ADF i.e., ADF and Algoma Central go up and down completely randomly.

Pair Corralation between ADF and Algoma Central

Assuming the 90 days trading horizon ADF Group is expected to under-perform the Algoma Central. In addition to that, ADF is 3.22 times more volatile than Algoma Central. It trades about -0.03 of its total potential returns per unit of risk. Algoma Central is currently generating about 0.08 per unit of volatility. If you would invest  1,408  in Algoma Central on September 12, 2024 and sell it today you would earn a total of  75.00  from holding Algoma Central or generate 5.33% return on investment over 90 days.

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

ADF Group  vs.  Algoma Central

ADF Group

Risk-Adjusted Performance

0 of 100

Very Weak

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

Algoma Central

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Algoma Central are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Algoma Central is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with ADF and Algoma Central

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

The idea behind ADF Group and Algoma Central 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.

Check out your portfolio center.

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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.