Correlation Between Velan and ADF

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

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

Diversification Opportunities for Velan and ADF

-0.68

Correlation Coefficient

Velan  ADF

Excellent diversification

The 3 months correlation between Velan and ADF is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Velan Inc and ADF Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ADF Group and Velan 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 Velan Inc are associated (or correlated) with ADF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ADF Group has no effect on the direction of Velan i.e., Velan and ADF go up and down completely randomly.

Pair Corralation between Velan and ADF

Assuming the 90 days trading horizon Velan is expected to generate 3.19 times less return on investment than ADF. But when comparing it to its historical volatility, Velan Inc is 1.04 times less risky than ADF. It trades about 0.03 of its potential returns per unit of risk. ADF Group is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  208.00  in ADF Group on December 1, 2024 and sell it today you would earn a total of  644.00  from holding ADF Group or generate 309.62% return on investment over 90 days.

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

Velan Inc  vs.  ADF Group

Velan Inc

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Velan Inc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Velan displayed solid returns over the last few months and may actually be approaching a breakup point.

ADF Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days ADF Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, ADF is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Velan and ADF

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

The idea behind Velan Inc and ADF Group 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.