Correlation Between Flex and Optical Cable

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

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

Diversification Opportunities for Flex and Optical Cable

0.76

Correlation Coefficient

Flex  Optical Cable

Poor diversification

The 3 months correlation between Flex and Optical is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Flex and Optical Cable in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Optical Cable and Flex 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 Flex are associated (or correlated) with Optical Cable. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Optical Cable has no effect on the direction of Flex i.e., Flex and Optical Cable go up and down completely randomly.

Pair Corralation between Flex and Optical Cable

Given the investment horizon of 90 days Flex is expected to under-perform the Optical Cable. But the stock apears to be less risky and, when comparing its historical volatility, Flex is 2.27 times less risky than Optical Cable. The stock trades about -0.05 of its potential returns per unit of risk. The Optical Cable is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  387.00  in Optical Cable on December 28, 2024 and sell it today you would lose (69.00) from holding Optical Cable or give up 17.83% of portfolio value over 90 days.

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

Flex  vs.  Optical Cable

Flex

Risk-Adjusted Performance

Very Weak

Over the last 90 days Flex has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Optical Cable

Risk-Adjusted Performance

Very Weak

Over the last 90 days Optical Cable has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Flex and Optical Cable

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

The idea behind Flex and Optical Cable 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.