Correlation Between ADF Foods and Asian Hotels

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Can any of the company-specific risk be diversified away by investing in both ADF Foods and Asian Hotels 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 ADF Foods and Asian Hotels into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ADF Foods Limited and Asian Hotels Limited, you can compare the effects of market volatilities on ADF Foods and Asian Hotels 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 ADF Foods with a short position of Asian Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of ADF Foods and Asian Hotels.

Diversification Opportunities for ADF Foods and Asian Hotels

0.53
  Correlation Coefficient

Very weak diversification

The 3 months correlation between ADF and Asian is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding ADF Foods Limited and Asian Hotels Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asian Hotels Limited and ADF Foods 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 ADF Foods Limited are associated (or correlated) with Asian Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asian Hotels Limited has no effect on the direction of ADF Foods i.e., ADF Foods and Asian Hotels go up and down completely randomly.

Pair Corralation between ADF Foods and Asian Hotels

Assuming the 90 days trading horizon ADF Foods Limited is expected to generate 1.14 times more return on investment than Asian Hotels. However, ADF Foods is 1.14 times more volatile than Asian Hotels Limited. It trades about 0.08 of its potential returns per unit of risk. Asian Hotels Limited is currently generating about -0.01 per unit of risk. If you would invest  20,100  in ADF Foods Limited on September 14, 2024 and sell it today you would earn a total of  12,845  from holding ADF Foods Limited or generate 63.91% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy99.18%
ValuesDaily Returns

ADF Foods Limited  vs.  Asian Hotels Limited

 Performance 
       Timeline  
ADF Foods Limited 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in ADF Foods Limited are ranked lower than 8 (%) 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.
Asian Hotels Limited 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Asian Hotels Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Asian Hotels may actually be approaching a critical reversion point that can send shares even higher in January 2025.

ADF Foods and Asian Hotels Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with ADF Foods and Asian Hotels

The main advantage of trading using opposite ADF Foods and Asian Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ADF Foods position performs unexpectedly, Asian Hotels 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 Asian Hotels will offset losses from the drop in Asian Hotels' long position.
The idea behind ADF Foods Limited and Asian Hotels 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.
Check out your portfolio center.
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.

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