Correlation Between ADTRAN and Casa Systems

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

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

Diversification Opportunities for ADTRAN and Casa Systems

0.07

Correlation Coefficient

ADTRAN  Casa Systems

Significant diversification

The 3 months correlation between ADTRAN and Casa is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding ADTRAN Inc and Casa Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Casa Systems and ADTRAN 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 ADTRAN Inc are associated (or correlated) with Casa Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Casa Systems has no effect on the direction of ADTRAN i.e., ADTRAN and Casa Systems go up and down completely randomly.

Pair Corralation between ADTRAN and Casa Systems

Given the investment horizon of 90 days ADTRAN Inc is expected to generate 0.55 times more return on investment than Casa Systems. However, ADTRAN Inc is 1.81 times less risky than Casa Systems. It trades about -0.03 of its potential returns per unit of risk. Casa Systems is currently generating about -0.06 per unit of risk. If you would invest  1,980  in ADTRAN Inc on September 3, 2024 and sell it today you would lose (1,130) from holding ADTRAN Inc or give up 57.07% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	30.91%
Values	Daily Returns

ADTRAN Inc  vs.  Casa Systems

ADTRAN Inc

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ADTRAN Inc are ranked lower than 17 (%) 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.

Casa Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Casa Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Casa Systems is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with ADTRAN and Casa Systems

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

The idea behind ADTRAN Inc and Casa Systems 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..