Correlation Between Ubiquiti Networks and Applied Opt

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

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

Diversification Opportunities for Ubiquiti Networks and Applied Opt

-0.33

Correlation Coefficient

Ubiquiti Networks  Applied Opt

Very good diversification

The 3 months correlation between Ubiquiti and Applied is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Ubiquiti Networks and Applied Opt in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Opt and Ubiquiti 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 Ubiquiti Networks 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 Ubiquiti Networks i.e., Ubiquiti Networks and Applied Opt go up and down completely randomly.

Pair Corralation between Ubiquiti Networks and Applied Opt

Allowing for the 90-day total investment horizon Ubiquiti Networks is expected to under-perform the Applied Opt. But the stock apears to be less risky and, when comparing its historical volatility, Ubiquiti Networks is 2.05 times less risky than Applied Opt. The stock trades about -0.25 of its potential returns per unit of risk. The Applied Opt is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  3,015  in Applied Opt on November 20, 2024 and sell it today you would lose (442.50) from holding Applied Opt or give up 14.68% of portfolio value over 90 days.

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

Ubiquiti Networks  vs.  Applied Opt

Ubiquiti Networks

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ubiquiti Networks are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong forward indicators, Ubiquiti Networks is not utilizing all of its potentials. The current 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 latest unsteady 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 Ubiquiti Networks and Applied Opt

The main advantage of trading using opposite Ubiquiti Networks and Applied Opt positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ubiquiti Networks 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 Ubiquiti Networks 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.