Correlation Between Analog Devices and EMCORE

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

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

Diversification Opportunities for Analog Devices and EMCORE

-0.09

Correlation Coefficient

Analog Devices  EMCORE

Good diversification

The 3 months correlation between Analog and EMCORE is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Analog Devices and EMCORE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EMCORE 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 EMCORE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EMCORE has no effect on the direction of Analog Devices i.e., Analog Devices and EMCORE go up and down completely randomly.

Pair Corralation between Analog Devices and EMCORE

Considering the 90-day investment horizon Analog Devices is expected to generate 0.34 times more return on investment than EMCORE. However, Analog Devices is 2.97 times less risky than EMCORE. It trades about 0.04 of its potential returns per unit of risk. EMCORE is currently generating about -0.07 per unit of risk. If you would invest  14,370  in Analog Devices on January 19, 2024 and sell it today you would earn a total of  4,573  from holding Analog Devices or generate 31.82% return on investment over 90 days.

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

Analog Devices  vs.  EMCORE

Analog Devices

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Analog Devices has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

EMCORE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EMCORE has generated negative risk-adjusted returns adding no value to investors with long positions. Even with abnormal performance in the last few months, the Stock's forward-looking signals remain relatively invariable which may send shares a bit higher in May 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Analog Devices and EMCORE

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

The idea behind Analog Devices and EMCORE 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.