Correlation Between Analog Devices and First Solar

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

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

Diversification Opportunities for Analog Devices and First Solar

0.48

Correlation Coefficient

Analog Devices  First Solar

Very weak diversification

The 3 months correlation between Analog and First is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Analog Devices and First Solar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Solar 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 First Solar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Solar has no effect on the direction of Analog Devices i.e., Analog Devices and First Solar go up and down completely randomly.

Pair Corralation between Analog Devices and First Solar

Considering the 90-day investment horizon Analog Devices is expected to under-perform the First Solar. But the stock apears to be less risky and, when comparing its historical volatility, Analog Devices is 1.82 times less risky than First Solar. The stock trades about -0.16 of its potential returns per unit of risk. The First Solar is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  19,967  in First Solar on August 30, 2024 and sell it today you would lose (710.00) from holding First Solar or give up 3.56% of portfolio value over 90 days.

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

Analog Devices  vs.  First Solar

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 latest stock price confusion, may contribute to short-horizon losses for the traders.

First Solar

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Solar has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest inconsistent performance, the Stock's essential indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Analog Devices and First Solar

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

The idea behind Analog Devices and First Solar 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.