Correlation Between ADF Foods and Lemon Tree

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

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

Diversification Opportunities for ADF Foods and Lemon Tree

0.2

Correlation Coefficient

ADF Foods  Lemon Tree

Modest diversification

The 3 months correlation between ADF and Lemon is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding ADF Foods Limited and Lemon Tree Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lemon Tree Hotels and ADF Foods 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 Foods Limited are associated (or correlated) with Lemon Tree. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lemon Tree Hotels has no effect on the direction of ADF Foods i.e., ADF Foods and Lemon Tree go up and down completely randomly.

Pair Corralation between ADF Foods and Lemon Tree

Assuming the 90 days trading horizon ADF Foods Limited is expected to generate 1.45 times more return on investment than Lemon Tree. However, ADF Foods is 1.45 times more volatile than Lemon Tree Hotels. It trades about 0.11 of its potential returns per unit of risk. Lemon Tree Hotels is currently generating about 0.05 per unit of risk. If you would invest  22,962  in ADF Foods Limited on April 20, 2025 and sell it today you would earn a total of  4,348  from holding ADF Foods Limited or generate 18.94% return on investment over 90 days.

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

ADF Foods Limited  vs.  Lemon Tree Hotels

ADF Foods Limited

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ADF Foods Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, ADF Foods exhibited solid returns over the last few months and may actually be approaching a breakup point.

Lemon Tree Hotels

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lemon Tree Hotels are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Lemon Tree is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with ADF Foods and Lemon Tree

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

The idea behind ADF Foods Limited and Lemon Tree Hotels 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.