Correlation Between MRF and ADF Foods

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

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

Diversification Opportunities for MRF and ADF Foods

0.18

Correlation Coefficient

MRF  ADF Foods

Average diversification

The 3 months correlation between MRF and ADF is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding MRF 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 MRF 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 MRF 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 MRF i.e., MRF and ADF Foods go up and down completely randomly.

Pair Corralation between MRF and ADF Foods

Assuming the 90 days trading horizon MRF Limited is expected to generate 0.38 times more return on investment than ADF Foods. However, MRF Limited is 2.61 times less risky than ADF Foods. It trades about -0.35 of its potential returns per unit of risk. ADF Foods Limited is currently generating about -0.33 per unit of risk. If you would invest  13,215,100  in MRF Limited on October 8, 2024 and sell it today you would lose (928,100) from holding MRF Limited or give up 7.02% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

MRF Limited  vs.  ADF Foods Limited

MRF Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MRF Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

ADF Foods Limited

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ADF Foods Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, ADF Foods is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with MRF and ADF Foods

The main advantage of trading using opposite MRF and ADF Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MRF 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 MRF 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.

Check out your portfolio center.

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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.