Correlation Between Maharashtra Scooters and ADF Foods

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

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

Diversification Opportunities for Maharashtra Scooters and ADF Foods

-0.24

Correlation Coefficient

Maharashtra Scooters  ADF Foods

Very good diversification

The 3 months correlation between Maharashtra and ADF is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Maharashtra Scooters Limited and ADF Foods Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ADF Foods Limited and Maharashtra Scooters 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 Maharashtra Scooters Limited are associated (or correlated) with ADF Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ADF Foods Limited has no effect on the direction of Maharashtra Scooters i.e., Maharashtra Scooters and ADF Foods go up and down completely randomly.

Pair Corralation between Maharashtra Scooters and ADF Foods

Assuming the 90 days trading horizon Maharashtra Scooters Limited is expected to under-perform the ADF Foods. But the stock apears to be less risky and, when comparing its historical volatility, Maharashtra Scooters Limited is 1.25 times less risky than ADF Foods. The stock trades about -0.15 of its potential returns per unit of risk. The ADF Foods Limited is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  28,868  in ADF Foods Limited on October 23, 2024 and sell it today you would lose (1,633) from holding ADF Foods Limited or give up 5.66% of portfolio value over 90 days.

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

Maharashtra Scooters Limited  vs.  ADF Foods Limited

Maharashtra Scooters

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Maharashtra Scooters Limited 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 very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

ADF Foods Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ADF Foods Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, ADF Foods is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Maharashtra Scooters and ADF Foods

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

The idea behind Maharashtra Scooters Limited and ADF Foods 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.