Correlation Between API3 and ADX

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Can any of the company-specific risk be diversified away by investing in both API3 and ADX 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 API3 and ADX into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between API3 and ADX, you can compare the effects of market volatilities on API3 and ADX 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 API3 with a short position of ADX. Check out your portfolio center. Please also check ongoing floating volatility patterns of API3 and ADX.

Diversification Opportunities for API3 and ADX

0.52
  Correlation Coefficient

Very weak diversification

The 3 months correlation between API3 and ADX is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding API3 and ADX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ADX and API3 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 API3 are associated (or correlated) with ADX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ADX has no effect on the direction of API3 i.e., API3 and ADX go up and down completely randomly.

Pair Corralation between API3 and ADX

Assuming the 90 days trading horizon API3 is expected to generate 8.38 times less return on investment than ADX. In addition to that, API3 is 1.57 times more volatile than ADX. It trades about 0.02 of its total potential returns per unit of risk. ADX is currently generating about 0.24 per unit of volatility. If you would invest  22.00  in ADX on December 29, 2023 and sell it today you would earn a total of  6.00  from holding ADX or generate 27.27% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

API3  vs.  ADX

 Performance 
       Timeline  
API3 

Risk-Adjusted Performance

11 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in API3 are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, API3 exhibited solid returns over the last few months and may actually be approaching a breakup point.
ADX 

Risk-Adjusted Performance

10 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in ADX are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, ADX exhibited solid returns over the last few months and may actually be approaching a breakup point.

API3 and ADX Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with API3 and ADX

The main advantage of trading using opposite API3 and ADX positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if API3 position performs unexpectedly, ADX 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 ADX will offset losses from the drop in ADX's long position.
The idea behind API3 and ADX 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.
Check out your portfolio center.
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.

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