Correlation Between Analog Devices and CBOE Crude

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

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

Diversification Opportunities for Analog Devices and CBOE Crude

0.68

Correlation Coefficient

Analog Devices  CBOE Crude

Poor diversification

The 3 months correlation between Analog and CBOE is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Analog Devices and CBOE Crude Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CBOE Crude Oil 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 CBOE Crude. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CBOE Crude Oil has no effect on the direction of Analog Devices i.e., Analog Devices and CBOE Crude go up and down completely randomly.

Pair Corralation between Analog Devices and CBOE Crude

Considering the 90-day investment horizon Analog Devices is expected to generate 3.09 times less return on investment than CBOE Crude. But when comparing it to its historical volatility, Analog Devices is 4.05 times less risky than CBOE Crude. It trades about 0.04 of its potential returns per unit of risk. CBOE Crude Oil is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,945  in CBOE Crude Oil on October 6, 2024 and sell it today you would earn a total of  9.00  from holding CBOE Crude Oil or generate 0.31% return on investment over 90 days.

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

Analog Devices  vs.  CBOE Crude Oil

Pair Trading with Analog Devices and CBOE Crude

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

The idea behind Analog Devices and CBOE Crude Oil 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.