Correlation Between Supremex and ADF
Can any of the company-specific risk be diversified away by investing in both Supremex 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 Supremex and ADF into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Supremex and ADF Group, you can compare the effects of market volatilities on Supremex 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 Supremex with a short position of ADF. Check out your portfolio center. Please also check ongoing floating volatility patterns of Supremex and ADF.
Diversification Opportunities for Supremex and ADF
Good diversification
The 3 months correlation between Supremex and ADF is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Supremex and ADF Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ADF Group and Supremex 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 Supremex 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 Supremex i.e., Supremex and ADF go up and down completely randomly.
Pair Corralation between Supremex and ADF
Assuming the 90 days trading horizon Supremex is expected to generate 0.6 times more return on investment than ADF. However, Supremex is 1.67 times less risky than ADF. It trades about -0.04 of its potential returns per unit of risk. ADF Group is currently generating about -0.13 per unit of risk. If you would invest 432.00 in Supremex on August 30, 2024 and sell it today you would lose (32.00) from holding Supremex or give up 7.41% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Supremex vs. ADF Group
Performance |
| Timeline |
| Supremex |
| ADF Group |
Supremex and ADF Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Supremex and ADF
The main advantage of trading using opposite Supremex and ADF positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Supremex 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 Supremex 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.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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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