Correlation Between NetApp and Applied Opt

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

Diversification Opportunities for NetApp and Applied Opt

  Correlation Coefficient

Poor diversification

The 3 months correlation between NetApp and Applied is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding NetApp Inc and Applied Opt in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Opt and NetApp 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 NetApp Inc 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 NetApp i.e., NetApp and Applied Opt go up and down completely randomly.

Pair Corralation between NetApp and Applied Opt

Given the investment horizon of 90 days NetApp Inc is expected to generate 0.25 times more return on investment than Applied Opt. However, NetApp Inc is 4.01 times less risky than Applied Opt. It trades about -0.18 of its potential returns per unit of risk. Applied Opt is currently generating about -0.1 per unit of risk. If you would invest  6,595  in NetApp Inc on December 21, 2022 and sell it today you would lose (298.00)  from holding NetApp Inc or give up 4.52% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
ValuesDaily Returns

NetApp Inc  vs.  Applied Opt

 Performance (%) 
NetApp Inc 

NetApp Performance

5 of 100

Compared to the overall equity markets, risk-adjusted returns on investments in NetApp Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, NetApp may actually be approaching a critical reversion point that can send shares even higher in April 2023.
Applied Opt 

Applied Performance

4 of 100

Compared to the overall equity markets, risk-adjusted returns on investments in Applied Opt are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly conflicting basic indicators, Applied Opt demonstrated solid returns over the last few months and may actually be approaching a breakup point.

NetApp and Applied Opt Volatility Contrast

   Predicted Return Density   

Pair Trading with NetApp and Applied Opt

The main advantage of trading using opposite NetApp and Applied Opt positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NetApp 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.
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The idea behind NetApp Inc 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.
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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 Bond Directory module to find actively traded corporate debentures issued by US companies.

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