Correlation Between Baozun and NETGEAR

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

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

Diversification Opportunities for Baozun and NETGEAR

-0.41

Correlation Coefficient

Baozun  NETGEAR

Very good diversification

The 3 months correlation between Baozun and NETGEAR is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Baozun Inc and NETGEAR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NETGEAR and Baozun 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 Baozun Inc are associated (or correlated) with NETGEAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NETGEAR has no effect on the direction of Baozun i.e., Baozun and NETGEAR go up and down completely randomly.

Pair Corralation between Baozun and NETGEAR

Given the investment horizon of 90 days Baozun Inc is expected to generate 2.38 times more return on investment than NETGEAR. However, Baozun is 2.38 times more volatile than NETGEAR. It trades about 0.06 of its potential returns per unit of risk. NETGEAR is currently generating about 0.13 per unit of risk. If you would invest  242.00  in Baozun Inc on September 12, 2024 and sell it today you would earn a total of  35.00  from holding Baozun Inc or generate 14.46% return on investment over 90 days.

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

Baozun Inc  vs.  NETGEAR

Baozun Inc

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Baozun Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Baozun displayed solid returns over the last few months and may actually be approaching a breakup point.

NETGEAR

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NETGEAR are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady technical and fundamental indicators, NETGEAR reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Baozun and NETGEAR

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

The idea behind Baozun Inc and NETGEAR 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.