Correlation Between Applied Opt and Seiko Epson

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

By analyzing existing cross correlation between Applied Opt and Seiko Epson Corp, you can compare the effects of market volatilities on Applied Opt and Seiko Epson 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 Seiko Epson. Check out your portfolio center. Please also check ongoing floating volatility patterns of Applied Opt and Seiko Epson.

Diversification Opportunities for Applied Opt and Seiko Epson

-0.36

Correlation Coefficient

Applied Opt  Seiko Epson

Very good diversification

The 3 months correlation between Applied and Seiko is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Applied Opt and Seiko Epson Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seiko Epson Corp 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 Seiko Epson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Seiko Epson Corp has no effect on the direction of Applied Opt i.e., Applied Opt and Seiko Epson go up and down completely randomly.

Pair Corralation between Applied Opt and Seiko Epson

Given the investment horizon of 90 days Applied Opt is expected to generate 3.82 times more return on investment than Seiko Epson. However, Applied Opt is 3.82 times more volatile than Seiko Epson Corp. It trades about 0.12 of its potential returns per unit of risk. Seiko Epson Corp is currently generating about 0.02 per unit of risk. If you would invest  1,113  in Applied Opt on September 18, 2024 and sell it today you would earn a total of  2,098  from holding Applied Opt or generate 188.5% return on investment over 90 days.

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

Applied Opt  vs.  Seiko Epson Corp

Applied Opt

Risk-Adjusted Performance

14 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Applied Opt are ranked lower than 14 (%) 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.

Seiko Epson Corp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Seiko Epson Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical and fundamental indicators, Seiko Epson is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Applied Opt and Seiko Epson

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

The idea behind Applied Opt and Seiko Epson Corp 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.