Correlation Between Apple and ADTRAN
Can any of the company-specific risk be diversified away by investing in both Apple and ADTRAN 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 Apple and ADTRAN into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Apple Inc and ADTRAN Inc, you can compare the effects of market volatilities on Apple and ADTRAN 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 Apple with a short position of ADTRAN. Check out your portfolio center. Please also check ongoing floating volatility patterns of Apple and ADTRAN.
Diversification Opportunities for Apple and ADTRAN
Poor diversification
The 3 months correlation between Apple and ADTRAN is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Apple Inc and ADTRAN Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ADTRAN Inc and Apple 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 Apple Inc are associated (or correlated) with ADTRAN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ADTRAN Inc has no effect on the direction of Apple i.e., Apple and ADTRAN go up and down completely randomly.
Pair Corralation between Apple and ADTRAN
Given the investment horizon of 90 days Apple Inc is expected to generate 0.32 times more return on investment than ADTRAN. However, Apple Inc is 3.11 times less risky than ADTRAN. It trades about 0.02 of its potential returns per unit of risk. ADTRAN Inc is currently generating about -0.09 per unit of risk. If you would invest 16,529 in Apple Inc on December 29, 2023 and sell it today you would earn a total of 802.00 from holding Apple Inc or generate 4.85% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Apple Inc vs. ADTRAN Inc
Performance |
Timeline |
Apple Inc |
ADTRAN Inc |
Apple and ADTRAN Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Apple and ADTRAN
The main advantage of trading using opposite Apple and ADTRAN positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Apple position performs unexpectedly, ADTRAN 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 ADTRAN will offset losses from the drop in ADTRAN's long position.The idea behind Apple Inc and ADTRAN Inc 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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