Correlation Between ADF and Yellow Pages

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

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

Diversification Opportunities for ADF and Yellow Pages

-0.58

Correlation Coefficient

ADF  Yellow Pages

Excellent diversification

The 3 months correlation between ADF and Yellow is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding ADF Group and Yellow Pages Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yellow Pages Limited 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 Yellow Pages. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yellow Pages Limited has no effect on the direction of ADF i.e., ADF and Yellow Pages go up and down completely randomly.

Pair Corralation between ADF and Yellow Pages

Assuming the 90 days trading horizon ADF is expected to generate 1.48 times less return on investment than Yellow Pages. In addition to that, ADF is 1.87 times more volatile than Yellow Pages Limited. It trades about 0.08 of its total potential returns per unit of risk. Yellow Pages Limited is currently generating about 0.21 per unit of volatility. If you would invest  973.00  in Yellow Pages Limited on September 23, 2024 and sell it today you would earn a total of  158.00  from holding Yellow Pages Limited or generate 16.24% return on investment over 90 days.

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

ADF Group  vs.  Yellow Pages Limited

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 current stock price disarray, may contribute to short-term losses for the investors.

Yellow Pages Limited

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Yellow Pages Limited are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Yellow Pages displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ADF and Yellow Pages

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

The idea behind ADF Group and Yellow Pages 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.