Correlation Between TATA SUMER and ADF Foods

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

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

Diversification Opportunities for TATA SUMER and ADF Foods

-0.5

Correlation Coefficient

TATA SUMER  ADF Foods

Very good diversification

The 3 months correlation between TATA and ADF is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding TATA SUMER PRODUCTS 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 TATA SUMER 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 TATA SUMER PRODUCTS 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 TATA SUMER i.e., TATA SUMER and ADF Foods go up and down completely randomly.

Pair Corralation between TATA SUMER and ADF Foods

Assuming the 90 days trading horizon TATA SUMER is expected to generate 21.13 times less return on investment than ADF Foods. But when comparing it to its historical volatility, TATA SUMER PRODUCTS is 20.17 times less risky than ADF Foods. It trades about 0.06 of its potential returns per unit of risk. ADF Foods Limited is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  13,713  in ADF Foods Limited on October 5, 2024 and sell it today you would earn a total of  15,512  from holding ADF Foods Limited or generate 113.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.78%
Values	Daily Returns

TATA SUMER PRODUCTS  vs.  ADF Foods Limited

TATA SUMER PRODUCTS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TATA SUMER PRODUCTS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain 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

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ADF Foods Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, ADF Foods exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TATA SUMER and ADF Foods

The main advantage of trading using opposite TATA SUMER and ADF Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TATA SUMER 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 TATA SUMER PRODUCTS 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..