Correlation Between Adams Natural and Eafe Pure

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

By analyzing existing cross correlation between Adams Natural Resources and The Eafe Pure, you can compare the effects of market volatilities on Adams Natural and Eafe Pure 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 Adams Natural with a short position of Eafe Pure. Check out your portfolio center. Please also check ongoing floating volatility patterns of Adams Natural and Eafe Pure.

Diversification Opportunities for Adams Natural and Eafe Pure

-0.37

Correlation Coefficient

Adams Natural  Eafe Pure

Very good diversification

The 3 months correlation between Adams and Eafe is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Adams Natural Resources and The Eafe Pure in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eafe Pure and Adams Natural 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 Adams Natural Resources are associated (or correlated) with Eafe Pure. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eafe Pure has no effect on the direction of Adams Natural i.e., Adams Natural and Eafe Pure go up and down completely randomly.

Pair Corralation between Adams Natural and Eafe Pure

Considering the 90-day investment horizon Adams Natural Resources is expected to under-perform the Eafe Pure. But the fund apears to be less risky and, when comparing its historical volatility, Adams Natural Resources is 1.4 times less risky than Eafe Pure. The fund trades about -0.16 of its potential returns per unit of risk. The The Eafe Pure is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,279  in The Eafe Pure on September 13, 2024 and sell it today you would earn a total of  41.00  from holding The Eafe Pure or generate 3.21% return on investment over 90 days.

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

Adams Natural Resources  vs.  The Eafe Pure

Adams Natural Resources

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Adams Natural Resources are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of very healthy technical and fundamental indicators, Adams Natural is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Eafe Pure

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Eafe Pure has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward-looking signals, Eafe Pure is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Adams Natural and Eafe Pure

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

The idea behind Adams Natural Resources and The Eafe Pure 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.