Correlation Between Deluxe and NETGEAR

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

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

Diversification Opportunities for Deluxe and NETGEAR

0.64

Correlation Coefficient

Deluxe  NETGEAR

Poor diversification

The 3 months correlation between Deluxe and NETGEAR is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Deluxe and NETGEAR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NETGEAR and Deluxe 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 Deluxe 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 Deluxe i.e., Deluxe and NETGEAR go up and down completely randomly.

Pair Corralation between Deluxe and NETGEAR

Considering the 90-day investment horizon Deluxe is expected to generate 1.89 times less return on investment than NETGEAR. In addition to that, Deluxe is 1.08 times more volatile than NETGEAR. It trades about 0.12 of its total potential returns per unit of risk. NETGEAR is currently generating about 0.25 per unit of volatility. If you would invest  2,042  in NETGEAR on October 27, 2024 and sell it today you would earn a total of  743.00  from holding NETGEAR or generate 36.39% return on investment over 90 days.

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

Deluxe  vs.  NETGEAR

Deluxe

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Deluxe are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating essential indicators, Deluxe showed solid returns over the last few months and may actually be approaching a breakup point.

NETGEAR

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in NETGEAR are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting technical and fundamental indicators, NETGEAR reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Deluxe and NETGEAR

The main advantage of trading using opposite Deluxe and NETGEAR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Deluxe 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 Deluxe 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 Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.