Correlation Between Aviat Networks and Frequency Electronics

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

By analyzing existing cross correlation between Aviat Networks and Frequency Electronics, you can compare the effects of market volatilities on Aviat Networks and Frequency Electronics 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 Aviat Networks with a short position of Frequency Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aviat Networks and Frequency Electronics.

Diversification Opportunities for Aviat Networks and Frequency Electronics

-0.45

Correlation Coefficient

Aviat Networks  Frequency Electronics

Very good diversification

The 3 months correlation between Aviat and Frequency is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Aviat Networks and Frequency Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frequency Electronics and Aviat Networks 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 Aviat Networks are associated (or correlated) with Frequency Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frequency Electronics has no effect on the direction of Aviat Networks i.e., Aviat Networks and Frequency Electronics go up and down completely randomly.

Pair Corralation between Aviat Networks and Frequency Electronics

Given the investment horizon of 90 days Aviat Networks is expected to under-perform the Frequency Electronics. In addition to that, Aviat Networks is 1.36 times more volatile than Frequency Electronics. It trades about -0.01 of its total potential returns per unit of risk. Frequency Electronics is currently generating about 0.12 per unit of volatility. If you would invest  1,266  in Frequency Electronics on September 13, 2024 and sell it today you would earn a total of  404.00  from holding Frequency Electronics or generate 31.91% return on investment over 90 days.

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

Aviat Networks  vs.  Frequency Electronics

Aviat Networks

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aviat Networks has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Aviat Networks is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Frequency Electronics

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Frequency Electronics are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent forward indicators, Frequency Electronics displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aviat Networks and Frequency Electronics

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

The idea behind Aviat Networks and Frequency Electronics 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.