Correlation Between TVS Electronics and ADF Foods

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

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

Diversification Opportunities for TVS Electronics and ADF Foods

-0.28

Correlation Coefficient

TVS Electronics  ADF Foods

Very good diversification

The 3 months correlation between TVS and ADF is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding TVS Electronics Limited and ADF Foods Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ADF Foods Limited and TVS Electronics 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 TVS Electronics Limited are associated (or correlated) with ADF Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ADF Foods Limited has no effect on the direction of TVS Electronics i.e., TVS Electronics and ADF Foods go up and down completely randomly.

Pair Corralation between TVS Electronics and ADF Foods

Assuming the 90 days trading horizon TVS Electronics Limited is expected to generate 0.98 times more return on investment than ADF Foods. However, TVS Electronics Limited is 1.02 times less risky than ADF Foods. It trades about 0.42 of its potential returns per unit of risk. ADF Foods Limited is currently generating about -0.21 per unit of risk. If you would invest  33,645  in TVS Electronics Limited on September 29, 2024 and sell it today you would earn a total of  6,610  from holding TVS Electronics Limited or generate 19.65% return on investment over 90 days.

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

TVS Electronics Limited  vs.  ADF Foods Limited

TVS Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TVS Electronics Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, TVS Electronics is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

ADF Foods Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ADF Foods Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting basic indicators, ADF Foods exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TVS Electronics and ADF Foods

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

The idea behind TVS Electronics Limited and ADF Foods Limited 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.