Correlation Between Forward Industries and Adidas AG

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

By analyzing existing cross correlation between Forward Industries and Adidas AG ADR, you can compare the effects of market volatilities on Forward Industries and Adidas AG 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 Forward Industries with a short position of Adidas AG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Forward Industries and Adidas AG.

Diversification Opportunities for Forward Industries and Adidas AG

0.77

Correlation Coefficient

Forward Industries  Adidas AG

Poor diversification

The 3 months correlation between Forward and Adidas is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Forward Industries and Adidas AG ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adidas AG ADR and Forward Industries 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 Forward Industries are associated (or correlated) with Adidas AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adidas AG ADR has no effect on the direction of Forward Industries i.e., Forward Industries and Adidas AG go up and down completely randomly.

Pair Corralation between Forward Industries and Adidas AG

Given the investment horizon of 90 days Forward Industries is expected to under-perform the Adidas AG. In addition to that, Forward Industries is 2.41 times more volatile than Adidas AG ADR. It trades about -0.06 of its total potential returns per unit of risk. Adidas AG ADR is currently generating about -0.01 per unit of volatility. If you would invest  12,239  in Adidas AG ADR on December 29, 2024 and sell it today you would lose (236.00) from holding Adidas AG ADR or give up 1.93% of portfolio value over 90 days.

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

Forward Industries  vs.  Adidas AG ADR

Forward Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days Forward Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Adidas AG ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Adidas AG ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Adidas AG is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Forward Industries and Adidas AG

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

The idea behind Forward Industries and Adidas AG ADR 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.