Correlation Between Analog Devices and Applied Opt

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

By analyzing existing cross correlation between Analog Devices and Applied Opt, you can compare the effects of market volatilities on Analog Devices and Applied Opt 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 Analog Devices with a short position of Applied Opt. Check out your portfolio center. Please also check ongoing floating volatility patterns of Analog Devices and Applied Opt.

Diversification Opportunities for Analog Devices and Applied Opt

-0.25

Correlation Coefficient

Analog Devices  Applied Opt

Very good diversification

The 3 months correlation between Analog and Applied is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Analog Devices and Applied Opt in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Opt and Analog Devices 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 Analog Devices are associated (or correlated) with Applied Opt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Opt has no effect on the direction of Analog Devices i.e., Analog Devices and Applied Opt go up and down completely randomly.

Pair Corralation between Analog Devices and Applied Opt

Considering the 90-day investment horizon Analog Devices is expected to generate 0.58 times more return on investment than Applied Opt. However, Analog Devices is 1.72 times less risky than Applied Opt. It trades about 0.07 of its potential returns per unit of risk. Applied Opt is currently generating about -0.34 per unit of risk. If you would invest  19,333  in Analog Devices on January 27, 2024 and sell it today you would earn a total of  461.00  from holding Analog Devices or generate 2.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Analog Devices  vs.  Applied Opt

Analog Devices

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Analog Devices are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong fundamental indicators, Analog Devices is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Applied Opt

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Applied Opt has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in May 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Analog Devices and Applied Opt

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

The idea behind Analog Devices and Applied Opt 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.