Correlation Between ADTRAN and Hewlett Packard

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

By analyzing existing cross correlation between ADTRAN Inc and Hewlett Packard Enterprise, you can compare the effects of market volatilities on ADTRAN and Hewlett Packard 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 ADTRAN with a short position of Hewlett Packard. Check out your portfolio center. Please also check ongoing floating volatility patterns of ADTRAN and Hewlett Packard.

Diversification Opportunities for ADTRAN and Hewlett Packard

0.78

Correlation Coefficient

ADTRAN  Hewlett Packard

Poor diversification

The 3 months correlation between ADTRAN and Hewlett is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding ADTRAN Inc and Hewlett Packard Enterprise in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hewlett Packard Ente and ADTRAN 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 ADTRAN Inc are associated (or correlated) with Hewlett Packard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hewlett Packard Ente has no effect on the direction of ADTRAN i.e., ADTRAN and Hewlett Packard go up and down completely randomly.

Pair Corralation between ADTRAN and Hewlett Packard

Given the investment horizon of 90 days ADTRAN Inc is expected to generate 1.36 times more return on investment than Hewlett Packard. However, ADTRAN is 1.36 times more volatile than Hewlett Packard Enterprise. It trades about 0.22 of its potential returns per unit of risk. Hewlett Packard Enterprise is currently generating about 0.08 per unit of risk. If you would invest  539.00  in ADTRAN Inc on September 2, 2024 and sell it today you would earn a total of  311.00  from holding ADTRAN Inc or generate 57.7% return on investment over 90 days.

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

ADTRAN Inc  vs.  Hewlett Packard Enterprise

ADTRAN Inc

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ADTRAN Inc are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, ADTRAN displayed solid returns over the last few months and may actually be approaching a breakup point.

Hewlett Packard Ente

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hewlett Packard Enterprise are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting basic indicators, Hewlett Packard exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ADTRAN and Hewlett Packard

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

The idea behind ADTRAN Inc and Hewlett Packard Enterprise 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.