Correlation Between EMCORE and Infinera

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

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

Diversification Opportunities for EMCORE and Infinera

-0.78

Correlation Coefficient

EMCORE  Infinera

Pay attention - limited upside

The 3 months correlation between EMCORE and Infinera is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding EMCORE and Infinera in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Infinera and EMCORE 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 EMCORE are associated (or correlated) with Infinera. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Infinera has no effect on the direction of EMCORE i.e., EMCORE and Infinera go up and down completely randomly.

Pair Corralation between EMCORE and Infinera

Given the investment horizon of 90 days EMCORE is expected to generate 18.47 times more return on investment than Infinera. However, EMCORE is 18.47 times more volatile than Infinera. It trades about 0.18 of its potential returns per unit of risk. Infinera is currently generating about -0.08 per unit of risk. If you would invest  113.00  in EMCORE on September 25, 2024 and sell it today you would earn a total of  192.00  from holding EMCORE or generate 169.91% return on investment over 90 days.

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

EMCORE  vs.  Infinera

EMCORE

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in EMCORE are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal forward-looking signals, EMCORE reported solid returns over the last few months and may actually be approaching a breakup point.

Infinera

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Infinera has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Infinera is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with EMCORE and Infinera

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

The idea behind EMCORE and Infinera 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.