Correlation Between ADF and Meta Platforms

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

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

Diversification Opportunities for ADF and Meta Platforms

0.16

Correlation Coefficient

ADF  Meta Platforms

Average diversification

The 3 months correlation between ADF and Meta is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding ADF Group and Meta Platforms CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meta Platforms CDR 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 Meta Platforms. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meta Platforms CDR has no effect on the direction of ADF i.e., ADF and Meta Platforms go up and down completely randomly.

Pair Corralation between ADF and Meta Platforms

Assuming the 90 days trading horizon ADF Group is expected to under-perform the Meta Platforms. In addition to that, ADF is 1.61 times more volatile than Meta Platforms CDR. It trades about -0.04 of its total potential returns per unit of risk. Meta Platforms CDR is currently generating about 0.1 per unit of volatility. If you would invest  3,273  in Meta Platforms CDR on October 9, 2024 and sell it today you would earn a total of  218.00  from holding Meta Platforms CDR or generate 6.66% return on investment over 90 days.

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

ADF Group  vs.  Meta Platforms CDR

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 very healthy basic indicators, ADF is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Meta Platforms CDR

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Meta Platforms CDR are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Meta Platforms may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with ADF and Meta Platforms

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

The idea behind ADF Group and Meta Platforms CDR 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.