Correlation Between Optical Cable and ADTRAN

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

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

Diversification Opportunities for Optical Cable and ADTRAN

0.59

Correlation Coefficient

Optical Cable  ADTRAN

Very weak diversification

The 3 months correlation between Optical and ADTRAN is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Optical Cable and ADTRAN Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ADTRAN Inc and Optical Cable 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 Optical Cable are associated (or correlated) with ADTRAN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ADTRAN Inc has no effect on the direction of Optical Cable i.e., Optical Cable and ADTRAN go up and down completely randomly.

Pair Corralation between Optical Cable and ADTRAN

Considering the 90-day investment horizon Optical Cable is expected to generate 2.84 times more return on investment than ADTRAN. However, Optical Cable is 2.84 times more volatile than ADTRAN Inc. It trades about 0.28 of its potential returns per unit of risk. ADTRAN Inc is currently generating about 0.38 per unit of risk. If you would invest  332.00  in Optical Cable on October 22, 2024 and sell it today you would earn a total of  154.00  from holding Optical Cable or generate 46.39% return on investment over 90 days.

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

Optical Cable  vs.  ADTRAN Inc

Optical Cable

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Optical Cable are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent fundamental indicators, Optical Cable exhibited solid returns over the last few months and may actually be approaching a breakup point.

ADTRAN Inc

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ADTRAN Inc are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, ADTRAN displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Optical Cable and ADTRAN

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

The idea behind Optical Cable and ADTRAN Inc 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.