Correlation Between ADTRAN and Seiko Epson

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

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

Diversification Opportunities for ADTRAN and Seiko Epson

-0.46

Correlation Coefficient

ADTRAN  Seiko Epson

Very good diversification

The 3 months correlation between ADTRAN and Seiko is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding ADTRAN Inc 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 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 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 ADTRAN i.e., ADTRAN and Seiko Epson go up and down completely randomly.

Pair Corralation between ADTRAN and Seiko Epson

Given the investment horizon of 90 days ADTRAN Inc is expected to generate 1.82 times more return on investment than Seiko Epson. However, ADTRAN is 1.82 times more volatile than Seiko Epson Corp. It trades about 0.11 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  474.00  in ADTRAN Inc on September 18, 2024 and sell it today you would earn a total of  366.00  from holding ADTRAN Inc or generate 77.22% return on investment over 90 days.

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

ADTRAN Inc  vs.  Seiko Epson Corp

ADTRAN Inc

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ADTRAN Inc are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, ADTRAN displayed 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 ADTRAN and Seiko Epson

The main advantage of trading using opposite ADTRAN and Seiko Epson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ADTRAN 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 ADTRAN Inc 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.

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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.