Correlation Between Applied Opt and Motorola Solutions

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

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

Diversification Opportunities for Applied Opt and Motorola Solutions

0.9

Correlation Coefficient

Applied Opt  Motorola Solutions

Almost no diversification

The 3 months correlation between Applied and Motorola is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Applied Opt and Motorola Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Motorola Solutions and Applied Opt 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 Applied Opt are associated (or correlated) with Motorola Solutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Motorola Solutions has no effect on the direction of Applied Opt i.e., Applied Opt and Motorola Solutions go up and down completely randomly.

Pair Corralation between Applied Opt and Motorola Solutions

Given the investment horizon of 90 days Applied Opt is expected to generate 7.01 times more return on investment than Motorola Solutions. However, Applied Opt is 7.01 times more volatile than Motorola Solutions. It trades about 0.25 of its potential returns per unit of risk. Motorola Solutions is currently generating about 0.17 per unit of risk. If you would invest  1,226  in Applied Opt on September 1, 2024 and sell it today you would earn a total of  2,896  from holding Applied Opt or generate 236.22% return on investment over 90 days.

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

Applied Opt  vs.  Motorola Solutions

Applied Opt

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Applied Opt are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, Applied Opt demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Motorola Solutions

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Motorola Solutions are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, Motorola Solutions demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Applied Opt and Motorola Solutions

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

The idea behind Applied Opt and Motorola Solutions 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.