Correlation Between ADF and Clarke

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

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

Diversification Opportunities for ADF and Clarke

0.42

Correlation Coefficient

ADF  Clarke

Very weak diversification

The 3 months correlation between ADF and Clarke is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding ADF Group and Clarke Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clarke Inc 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 Clarke. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clarke Inc has no effect on the direction of ADF i.e., ADF and Clarke go up and down completely randomly.

Pair Corralation between ADF and Clarke

Assuming the 90 days trading horizon ADF Group is expected to under-perform the Clarke. In addition to that, ADF is 8.82 times more volatile than Clarke Inc. It trades about -0.02 of its total potential returns per unit of risk. Clarke Inc is currently generating about -0.07 per unit of volatility. If you would invest  2,371  in Clarke Inc on September 12, 2024 and sell it today you would lose (13.00) from holding Clarke Inc or give up 0.55% of portfolio value over 90 days.

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

ADF Group  vs.  Clarke Inc

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.

Clarke Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Clarke Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Clarke 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 Clarke

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

The idea behind ADF Group and Clarke Inc 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.