Correlation Between ADF Foods and Sudarshan Chemical

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

Diversification Opportunities for ADF Foods and Sudarshan Chemical

0.08

Correlation Coefficient

ADF Foods  Sudarshan Chemical

Significant diversification

The 3 months correlation between ADF and Sudarshan is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding ADF Foods Limited and Sudarshan Chemical Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sudarshan Chemical 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 Sudarshan Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sudarshan Chemical has no effect on the direction of ADF Foods i.e., ADF Foods and Sudarshan Chemical go up and down completely randomly.

Pair Corralation between ADF Foods and Sudarshan Chemical

Assuming the 90 days trading horizon ADF Foods Limited is expected to generate 0.95 times more return on investment than Sudarshan Chemical. However, ADF Foods Limited is 1.05 times less risky than Sudarshan Chemical. It trades about 0.12 of its potential returns per unit of risk. Sudarshan Chemical Industries is currently generating about 0.04 per unit of risk. If you would invest  25,899  in ADF Foods Limited on September 3, 2024 and sell it today you would earn a total of  7,366  from holding ADF Foods Limited or generate 28.44% return on investment over 90 days.

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

ADF Foods Limited  vs.  Sudarshan Chemical Industries

ADF Foods Limited

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ADF Foods Limited are ranked lower than 9 (%) 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.

Sudarshan Chemical

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sudarshan Chemical Industries are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical indicators, Sudarshan Chemical may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with ADF Foods and Sudarshan Chemical

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

The idea behind ADF Foods Limited and Sudarshan Chemical Industries 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.