Correlation Between Universal and ADVA Optical

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

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

Diversification Opportunities for Universal and ADVA Optical

0.48

Correlation Coefficient

Universal  ADVA Optical

Very weak diversification

The 3 months correlation between Universal and ADVA is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Universal and ADVA Optical Networking in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ADVA Optical Networking and Universal 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 Universal are associated (or correlated) with ADVA Optical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ADVA Optical Networking has no effect on the direction of Universal i.e., Universal and ADVA Optical go up and down completely randomly.

Pair Corralation between Universal and ADVA Optical

Considering the 90-day investment horizon Universal is expected to generate 6.58 times more return on investment than ADVA Optical. However, Universal is 6.58 times more volatile than ADVA Optical Networking. It trades about 0.12 of its potential returns per unit of risk. ADVA Optical Networking is currently generating about 0.15 per unit of risk. If you would invest  5,162  in Universal on September 13, 2024 and sell it today you would earn a total of  486.00  from holding Universal or generate 9.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Universal  vs.  ADVA Optical Networking

Universal

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Universal are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Universal may actually be approaching a critical reversion point that can send shares even higher in January 2025.

ADVA Optical Networking

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ADVA Optical Networking are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, ADVA Optical is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Universal and ADVA Optical

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

The idea behind Universal and ADVA Optical Networking 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.