Correlation Between China Southern and NETGEAR

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

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

Diversification Opportunities for China Southern and NETGEAR

0.34

Correlation Coefficient

China Southern  NETGEAR

Weak diversification

The 3 months correlation between China and NETGEAR is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding China Southern Airlines and NETGEAR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NETGEAR and China Southern 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 China Southern Airlines 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 China Southern i.e., China Southern and NETGEAR go up and down completely randomly.

Pair Corralation between China Southern and NETGEAR

Assuming the 90 days horizon China Southern Airlines is expected to under-perform the NETGEAR. But the pink sheet apears to be less risky and, when comparing its historical volatility, China Southern Airlines is 1.21 times less risky than NETGEAR. The pink sheet trades about -0.18 of its potential returns per unit of risk. The NETGEAR is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  2,719  in NETGEAR on December 22, 2024 and sell it today you would lose (356.00) from holding NETGEAR or give up 13.09% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	90.0%
Values	Daily Returns

China Southern Airlines  vs.  NETGEAR

China Southern Airlines

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Southern Airlines has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's forward indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

NETGEAR

Risk-Adjusted Performance

Very Weak

Over the last 90 days NETGEAR has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest inconsistent performance, the Stock's technical and fundamental indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with China Southern and NETGEAR

The main advantage of trading using opposite China Southern and NETGEAR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Southern 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 China Southern Airlines 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 Global Correlations module to find global opportunities by holding instruments from different markets.