Correlation Between ADF and Hammond Manufacturing

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

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

Diversification Opportunities for ADF and Hammond Manufacturing

0.58

Correlation Coefficient

ADF  Hammond Manufacturing

Very weak diversification

The 3 months correlation between ADF and Hammond is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding ADF Group and Hammond Manufacturing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hammond Manufacturing 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 Hammond Manufacturing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hammond Manufacturing has no effect on the direction of ADF i.e., ADF and Hammond Manufacturing go up and down completely randomly.

Pair Corralation between ADF and Hammond Manufacturing

Assuming the 90 days trading horizon ADF Group is expected to generate 1.47 times more return on investment than Hammond Manufacturing. However, ADF is 1.47 times more volatile than Hammond Manufacturing. It trades about 0.12 of its potential returns per unit of risk. Hammond Manufacturing is currently generating about 0.08 per unit of risk. If you would invest  183.00  in ADF Group on July 3, 2024 and sell it today you would earn a total of  885.00  from holding ADF Group or generate 483.61% return on investment over 90 days.

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

ADF Group  vs.  Hammond Manufacturing

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 November 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Hammond Manufacturing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hammond Manufacturing has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with ADF and Hammond Manufacturing

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

The idea behind ADF Group and Hammond Manufacturing 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..