Correlation Between ADTRAN and Jabil Circuit

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

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

Diversification Opportunities for ADTRAN and Jabil Circuit

0.03

Correlation Coefficient

ADTRAN  Jabil Circuit

Significant diversification

The 3 months correlation between ADTRAN and Jabil is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding ADTRAN Inc and Jabil Circuit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jabil Circuit and ADTRAN 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 ADTRAN Inc are associated (or correlated) with Jabil Circuit. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jabil Circuit has no effect on the direction of ADTRAN i.e., ADTRAN and Jabil Circuit go up and down completely randomly.

Pair Corralation between ADTRAN and Jabil Circuit

Given the investment horizon of 90 days ADTRAN Inc is expected to under-perform the Jabil Circuit. But the stock apears to be less risky and, when comparing its historical volatility, ADTRAN Inc is 1.06 times less risky than Jabil Circuit. The stock trades about -0.21 of its potential returns per unit of risk. The Jabil Circuit is currently generating about -0.15 of returns per unit of risk over similar time horizon. If you would invest  13,134  in Jabil Circuit on January 25, 2024 and sell it today you would lose (1,110) from holding Jabil Circuit or give up 8.45% of portfolio value over 90 days.

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

ADTRAN Inc  vs.  Jabil Circuit

ADTRAN Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ADTRAN Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in May 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Jabil Circuit

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Jabil Circuit has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental drivers, Jabil Circuit is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with ADTRAN and Jabil Circuit

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

The idea behind ADTRAN Inc and Jabil Circuit 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.