Correlation Between ADF and South32
Can any of the company-specific risk be diversified away by investing in both ADF and South32 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 and South32 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ADF Group and South32 Limited, you can compare the effects of market volatilities on ADF and South32 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 with a short position of South32. Check out your portfolio center. Please also check ongoing floating volatility patterns of ADF and South32.
Diversification Opportunities for ADF and South32
Pay attention - limited upside
The 3 months correlation between ADF and South32 is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding ADF Group and South32 Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on South32 Limited and ADF 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 Group are associated (or correlated) with South32. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of South32 Limited has no effect on the direction of ADF i.e., ADF and South32 go up and down completely randomly.
Pair Corralation between ADF and South32
Assuming the 90 days horizon ADF Group is expected to under-perform the South32. In addition to that, ADF is 1.38 times more volatile than South32 Limited. It trades about -0.18 of its total potential returns per unit of risk. South32 Limited is currently generating about -0.1 per unit of volatility. If you would invest 240.00 in South32 Limited on September 2, 2024 and sell it today you would lose (13.00) from holding South32 Limited or give up 5.42% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
ADF Group vs. South32 Limited
Performance |
| Timeline |
| ADF Group |
| South32 Limited |
ADF and South32 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ADF and South32
The main advantage of trading using opposite ADF and South32 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ADF position performs unexpectedly, South32 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 South32 will offset losses from the drop in South32's long position.The idea behind ADF Group and South32 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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