Correlation Between Clarke and ADF

Can any of the company-specific risk be diversified away by investing in both Clarke 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 Clarke and ADF into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Clarke Inc and ADF Group, you can compare the effects of market volatilities on Clarke 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 Clarke with a short position of ADF. Check out your portfolio center. Please also check ongoing floating volatility patterns of Clarke and ADF.

Diversification Opportunities for Clarke and ADF

0.45

Correlation Coefficient

Clarke  ADF

Very weak diversification

The 3 months correlation between Clarke and ADF is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Clarke Inc and ADF Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ADF Group and Clarke 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 Clarke Inc 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 Clarke i.e., Clarke and ADF go up and down completely randomly.

Pair Corralation between Clarke and ADF

Assuming the 90 days trading horizon Clarke Inc is expected to generate 0.09 times more return on investment than ADF. However, Clarke Inc is 10.62 times less risky than ADF. It trades about -0.07 of its potential returns per unit of risk. ADF Group is currently generating about -0.1 per unit of risk. If you would invest  2,390  in Clarke Inc on September 13, 2024 and sell it today you would lose (32.00) from holding Clarke Inc or give up 1.34% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Clarke Inc  vs.  ADF Group

Clarke Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Clarke Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Clarke is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

ADF Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ADF Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Clarke and ADF

The main advantage of trading using opposite Clarke and ADF positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Clarke 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 Clarke Inc 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.

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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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.