Correlation Between Adams Natural and Mid Capitalization

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

Diversification Opportunities for Adams Natural and Mid Capitalization

0.74

Correlation Coefficient

Adams Natural  Mid Capitalization

Poor diversification

The 3 months correlation between Adams and Mid is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Adams Natural Resources and Mid Capitalization Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid Capitalization 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 Mid Capitalization. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mid Capitalization has no effect on the direction of Adams Natural i.e., Adams Natural and Mid Capitalization go up and down completely randomly.

Pair Corralation between Adams Natural and Mid Capitalization

Considering the 90-day investment horizon Adams Natural Resources is expected to generate 0.67 times more return on investment than Mid Capitalization. However, Adams Natural Resources is 1.49 times less risky than Mid Capitalization. It trades about 0.07 of its potential returns per unit of risk. Mid Capitalization Portfolio is currently generating about 0.03 per unit of risk. If you would invest  1,925  in Adams Natural Resources on September 13, 2024 and sell it today you would earn a total of  330.00  from holding Adams Natural Resources or generate 17.14% return on investment over 90 days.

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

Adams Natural Resources  vs.  Mid Capitalization Portfolio

Adams Natural Resources

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Adams Natural Resources are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. 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.

Mid Capitalization

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mid Capitalization Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Mid Capitalization is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Adams Natural and Mid Capitalization

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

The idea behind Adams Natural Resources and Mid Capitalization Portfolio 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.