Correlation Between Adams Natural and New World

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

By analyzing existing cross correlation between Adams Natural Resources and New World Fund, you can compare the effects of market volatilities on Adams Natural and New World 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 Adams Natural with a short position of New World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Adams Natural and New World.

Diversification Opportunities for Adams Natural and New World

0.29

Correlation Coefficient

Adams Natural  New World

Modest diversification

The 3 months correlation between Adams and New is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Adams Natural Resources and New World Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New World Fund and Adams Natural 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 Adams Natural Resources are associated (or correlated) with New World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New World Fund has no effect on the direction of Adams Natural i.e., Adams Natural and New World go up and down completely randomly.

Pair Corralation between Adams Natural and New World

Considering the 90-day investment horizon Adams Natural is expected to generate 1.08 times less return on investment than New World. In addition to that, Adams Natural is 1.54 times more volatile than New World Fund. It trades about 0.03 of its total potential returns per unit of risk. New World Fund is currently generating about 0.05 per unit of volatility. If you would invest  6,532  in New World Fund on September 26, 2024 and sell it today you would earn a total of  1,149  from holding New World Fund or generate 17.59% return on investment over 90 days.

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

Adams Natural Resources  vs.  New World Fund

Adams Natural Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Adams Natural Resources has generated negative risk-adjusted returns adding no value to fund investors. In spite of very healthy technical and fundamental indicators, Adams Natural is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

New World Fund

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days New World Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Adams Natural and New World

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

The idea behind Adams Natural Resources and New World Fund 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.