Correlation Between Technology One and Analog Devices

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

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

Diversification Opportunities for Technology One and Analog Devices

-0.73

Correlation Coefficient

Technology One  Analog Devices

Pay attention - limited upside

The 3 months correlation between Technology and Analog is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Technology One Limited and Analog Devices in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Analog Devices and Technology One 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 Technology One Limited are associated (or correlated) with Analog Devices. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Analog Devices has no effect on the direction of Technology One i.e., Technology One and Analog Devices go up and down completely randomly.

Pair Corralation between Technology One and Analog Devices

Assuming the 90 days horizon Technology One Limited is expected to under-perform the Analog Devices. In addition to that, Technology One is 1.46 times more volatile than Analog Devices. It trades about -0.21 of its total potential returns per unit of risk. Analog Devices is currently generating about 0.13 per unit of volatility. If you would invest  21,489  in Analog Devices on October 23, 2024 and sell it today you would earn a total of  774.00  from holding Analog Devices or generate 3.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	94.74%
Values	Daily Returns

Technology One Limited  vs.  Analog Devices

Technology One

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Technology One Limited are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Technology One reported solid returns over the last few months and may actually be approaching a breakup point.

Analog Devices

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Analog Devices has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, Analog Devices is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Technology One and Analog Devices

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

The idea behind Technology One Limited and Analog Devices 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.