Correlation Between Western India and ADF Foods

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

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

Diversification Opportunities for Western India and ADF Foods

0.35

Correlation Coefficient

Western India  ADF Foods

Weak diversification

The 3 months correlation between Western and ADF is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding The Western India 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 Western India 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 The Western India 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 Western India i.e., Western India and ADF Foods go up and down completely randomly.

Pair Corralation between Western India and ADF Foods

Assuming the 90 days trading horizon The Western India is expected to generate 0.88 times more return on investment than ADF Foods. However, The Western India is 1.14 times less risky than ADF Foods. It trades about 0.12 of its potential returns per unit of risk. ADF Foods Limited is currently generating about -0.01 per unit of risk. If you would invest  19,121  in The Western India on October 10, 2024 and sell it today you would earn a total of  3,304  from holding The Western India or generate 17.28% return on investment over 90 days.

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

The Western India  vs.  ADF Foods Limited

Western India

Risk-Adjusted Performance

9 of 100

OK

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

ADF Foods Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ADF Foods Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, ADF Foods is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Western India and ADF Foods

The main advantage of trading using opposite Western India and ADF Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western India 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 The Western India 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.