Correlation Between Clearfield and Aviat Networks

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

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

Diversification Opportunities for Clearfield and Aviat Networks

0.11

Correlation Coefficient

Clearfield  Aviat Networks

Average diversification

The 3 months correlation between Clearfield and Aviat is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Clearfield and Aviat Networks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aviat Networks and Clearfield 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 Clearfield are associated (or correlated) with Aviat Networks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aviat Networks has no effect on the direction of Clearfield i.e., Clearfield and Aviat Networks go up and down completely randomly.

Pair Corralation between Clearfield and Aviat Networks

Given the investment horizon of 90 days Clearfield is expected to under-perform the Aviat Networks. But the stock apears to be less risky and, when comparing its historical volatility, Clearfield is 1.55 times less risky than Aviat Networks. The stock trades about -0.01 of its potential returns per unit of risk. The Aviat Networks is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,749  in Aviat Networks on December 30, 2024 and sell it today you would earn a total of  139.00  from holding Aviat Networks or generate 7.95% return on investment over 90 days.

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

Clearfield  vs.  Aviat Networks

Clearfield

Risk-Adjusted Performance

Very Weak

Over the last 90 days Clearfield has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Clearfield is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Aviat Networks

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Aviat Networks are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Aviat Networks showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Clearfield and Aviat Networks

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

The idea behind Clearfield and Aviat Networks 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.