Correlation Between Extreme Networks and Motorola Solutions

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

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

Diversification Opportunities for Extreme Networks and Motorola Solutions

-0.18

Correlation Coefficient

Extreme Networks  Motorola Solutions

Good diversification

The 3 months correlation between Extreme and Motorola is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Extreme Networks and Motorola Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Motorola Solutions and Extreme 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 Extreme Networks are associated (or correlated) with Motorola Solutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Motorola Solutions has no effect on the direction of Extreme Networks i.e., Extreme Networks and Motorola Solutions go up and down completely randomly.

Pair Corralation between Extreme Networks and Motorola Solutions

Given the investment horizon of 90 days Extreme Networks is expected to generate 1.63 times more return on investment than Motorola Solutions. However, Extreme Networks is 1.63 times more volatile than Motorola Solutions. It trades about 0.06 of its potential returns per unit of risk. Motorola Solutions is currently generating about -0.15 per unit of risk. If you would invest  1,543  in Extreme Networks on November 20, 2024 and sell it today you would earn a total of  95.00  from holding Extreme Networks or generate 6.16% return on investment over 90 days.

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

Extreme Networks  vs.  Motorola Solutions

Extreme Networks

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Extreme Networks are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Extreme Networks may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Motorola Solutions

Risk-Adjusted Performance

Very Weak

Over the last 90 days Motorola Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Extreme Networks and Motorola Solutions

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

The idea behind Extreme Networks and Motorola Solutions 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.