Correlation Between ADF and Water Ways

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Can any of the company-specific risk be diversified away by investing in both ADF and Water Ways 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 Water Ways into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ADF Group and Water Ways Technologies, you can compare the effects of market volatilities on ADF and Water Ways 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 Water Ways. Check out your portfolio center. Please also check ongoing floating volatility patterns of ADF and Water Ways.

Diversification Opportunities for ADF and Water Ways

0.56
  Correlation Coefficient

Very weak diversification

The 3 months correlation between ADF and Water is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding ADF Group and Water Ways Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Water Ways Technologies 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 Water Ways. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Water Ways Technologies has no effect on the direction of ADF i.e., ADF and Water Ways go up and down completely randomly.

Pair Corralation between ADF and Water Ways

Assuming the 90 days trading horizon ADF Group is expected to under-perform the Water Ways. But the stock apears to be less risky and, when comparing its historical volatility, ADF Group is 12.91 times less risky than Water Ways. The stock trades about -0.03 of its potential returns per unit of risk. The Water Ways Technologies is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1.50  in Water Ways Technologies on September 22, 2024 and sell it today you would lose (1.00) from holding Water Ways Technologies or give up 66.67% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

ADF Group  vs.  Water Ways Technologies

 Performance 
       Timeline  
ADF Group 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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 very healthy basic indicators, ADF is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.
Water Ways Technologies 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Water Ways Technologies are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Water Ways showed solid returns over the last few months and may actually be approaching a breakup point.

ADF and Water Ways Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with ADF and Water Ways

The main advantage of trading using opposite ADF and Water Ways positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ADF position performs unexpectedly, Water Ways 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 Water Ways will offset losses from the drop in Water Ways' long position.
The idea behind ADF Group and Water Ways Technologies 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.

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