Correlation Between Motorola Solutions and Applied Opt

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

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

Diversification Opportunities for Motorola Solutions and Applied Opt

0.74

Correlation Coefficient

Motorola Solutions  Applied Opt

Poor diversification

The 3 months correlation between Motorola and Applied is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Motorola Solutions and Applied Opt in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Opt and Motorola Solutions 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 Motorola Solutions are associated (or correlated) with Applied Opt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Opt has no effect on the direction of Motorola Solutions i.e., Motorola Solutions and Applied Opt go up and down completely randomly.

Pair Corralation between Motorola Solutions and Applied Opt

Considering the 90-day investment horizon Motorola Solutions is expected to generate 0.16 times more return on investment than Applied Opt. However, Motorola Solutions is 6.26 times less risky than Applied Opt. It trades about -0.07 of its potential returns per unit of risk. Applied Opt is currently generating about -0.1 per unit of risk. If you would invest  46,237  in Motorola Solutions on December 29, 2024 and sell it today you would lose (2,938) from holding Motorola Solutions or give up 6.35% of portfolio value over 90 days.

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

Motorola Solutions  vs.  Applied Opt

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 fairly strong basic indicators, Motorola Solutions is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Applied Opt

Risk-Adjusted Performance

Very Weak

Over the last 90 days Applied Opt has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Motorola Solutions and Applied Opt

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

The idea behind Motorola Solutions and Applied Opt 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.