Correlation Between ADF Foods and Indian Oil

Can any of the company-specific risk be diversified away by investing in both ADF Foods and Indian Oil 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 Indian Oil 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 Indian Oil, you can compare the effects of market volatilities on ADF Foods and Indian Oil 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 Indian Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of ADF Foods and Indian Oil.

Diversification Opportunities for ADF Foods and Indian Oil

-0.53

Correlation Coefficient

ADF Foods  Indian Oil

Excellent diversification

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

Pair Corralation between ADF Foods and Indian Oil

Assuming the 90 days trading horizon ADF Foods Limited is expected to generate 1.42 times more return on investment than Indian Oil. However, ADF Foods is 1.42 times more volatile than Indian Oil. It trades about 0.05 of its potential returns per unit of risk. Indian Oil is currently generating about 0.07 per unit of risk. If you would invest  19,859  in ADF Foods Limited on September 30, 2024 and sell it today you would earn a total of  10,281  from holding ADF Foods Limited or generate 51.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.73%
Values	Daily Returns

ADF Foods Limited  vs.  Indian Oil

ADF Foods Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ADF Foods Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, ADF Foods exhibited solid returns over the last few months and may actually be approaching a breakup point.

Indian Oil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Indian Oil has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with ADF Foods and Indian Oil

The main advantage of trading using opposite ADF Foods and Indian Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ADF Foods position performs unexpectedly, Indian Oil 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 Indian Oil will offset losses from the drop in Indian Oil's long position.

The idea behind ADF Foods Limited and Indian Oil 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.