Correlation Between Silicom and ADTRAN

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

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

Diversification Opportunities for Silicom and ADTRAN

0.75

Correlation Coefficient

Silicom  ADTRAN

Poor diversification

The 3 months correlation between Silicom and ADTRAN is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Silicom and ADTRAN Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ADTRAN Inc and Silicom 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 Silicom are associated (or correlated) with ADTRAN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ADTRAN Inc has no effect on the direction of Silicom i.e., Silicom and ADTRAN go up and down completely randomly.

Pair Corralation between Silicom and ADTRAN

Given the investment horizon of 90 days Silicom is expected to generate 9.68 times less return on investment than ADTRAN. But when comparing it to its historical volatility, Silicom is 1.3 times less risky than ADTRAN. It trades about 0.03 of its potential returns per unit of risk. ADTRAN Inc is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  558.00  in ADTRAN Inc on August 30, 2024 and sell it today you would earn a total of  281.00  from holding ADTRAN Inc or generate 50.36% return on investment over 90 days.

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

Silicom  vs.  ADTRAN Inc

Silicom

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Silicom are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, Silicom is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

ADTRAN Inc

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ADTRAN Inc are ranked lower than 15 (%) 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.

Pair Trading with Silicom and ADTRAN

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

The idea behind Silicom and ADTRAN Inc 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.