Correlation Between Zonetail and ADVA Optical

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

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

Diversification Opportunities for Zonetail and ADVA Optical

-0.54

Correlation Coefficient

Zonetail  ADVA Optical

Excellent diversification

The 3 months correlation between Zonetail and ADVA is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Zonetail 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 Zonetail 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 Zonetail 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 Zonetail i.e., Zonetail and ADVA Optical go up and down completely randomly.

Pair Corralation between Zonetail and ADVA Optical

Assuming the 90 days horizon Zonetail is expected to under-perform the ADVA Optical. In addition to that, Zonetail is 63.22 times more volatile than ADVA Optical Networking. It trades about -0.03 of its total potential returns per unit of risk. ADVA Optical Networking is currently generating about 0.15 per unit of volatility. If you would invest  2,019  in ADVA Optical Networking on September 2, 2024 and sell it today you would earn a total of  37.00  from holding ADVA Optical Networking or generate 1.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Zonetail  vs.  ADVA Optical Networking

Zonetail

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zonetail has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's essential indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Zonetail and ADVA Optical

The main advantage of trading using opposite Zonetail and ADVA Optical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Zonetail 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 Zonetail 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.

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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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.