Correlation Between Applied Optoelectronics and Rollins

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

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

Diversification Opportunities for Applied Optoelectronics and Rollins

-0.75

Correlation Coefficient

Applied Optoelectronics  Rollins

Pay attention - limited upside

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

Pair Corralation between Applied Optoelectronics and Rollins

Assuming the 90 days trading horizon Applied Optoelectronics is expected to generate 4.8 times more return on investment than Rollins. However, Applied Optoelectronics is 4.8 times more volatile than Rollins. It trades about 0.13 of its potential returns per unit of risk. Rollins is currently generating about 0.0 per unit of risk. If you would invest  1,310  in Applied Optoelectronics on May 4, 2025 and sell it today you would earn a total of  670.00  from holding Applied Optoelectronics or generate 51.15% return on investment over 90 days.

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

Applied Optoelectronics  vs.  Rollins

Applied Optoelectronics

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Applied Optoelectronics are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Applied Optoelectronics unveiled solid returns over the last few months and may actually be approaching a breakup point.

Rollins

Risk-Adjusted Performance

Very Weak

Over the last 90 days Rollins has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Rollins is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Applied Optoelectronics and Rollins

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

The idea behind Applied Optoelectronics and Rollins 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.