Correlation Between Current Water and ADF

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

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

Diversification Opportunities for Current Water and ADF

0.25

Correlation Coefficient

Current Water  ADF

Modest diversification

The 3 months correlation between Current and ADF is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Current Water Technologies and ADF Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ADF Group and Current Water 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 Current Water Technologies 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 Current Water i.e., Current Water and ADF go up and down completely randomly.

Pair Corralation between Current Water and ADF

Assuming the 90 days trading horizon Current Water Technologies is expected to generate 5.48 times more return on investment than ADF. However, Current Water is 5.48 times more volatile than ADF Group. It trades about 0.09 of its potential returns per unit of risk. ADF Group is currently generating about -0.1 per unit of risk. If you would invest  3.00  in Current Water Technologies on September 13, 2024 and sell it today you would earn a total of  0.50  from holding Current Water Technologies or generate 16.67% return on investment over 90 days.

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

Current Water Technologies  vs.  ADF Group

Current Water Techno

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Current Water Technologies are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Current Water showed solid returns over the last few months and may actually be approaching a breakup point.

ADF Group

Risk-Adjusted Performance

0 of 100

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 unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Current Water and ADF

The main advantage of trading using opposite Current Water and ADF positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Current Water 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 Current Water Technologies 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.