Correlation Between Eastern and NETGEAR

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

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

Diversification Opportunities for Eastern and NETGEAR

-0.79

Correlation Coefficient

Eastern  NETGEAR

Pay attention - limited upside

The 3 months correlation between Eastern and NETGEAR is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Eastern Co and NETGEAR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NETGEAR and Eastern 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 Eastern Co 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 Eastern i.e., Eastern and NETGEAR go up and down completely randomly.

Pair Corralation between Eastern and NETGEAR

Considering the 90-day investment horizon Eastern is expected to generate 1.22 times less return on investment than NETGEAR. But when comparing it to its historical volatility, Eastern Co is 1.06 times less risky than NETGEAR. It trades about 0.12 of its potential returns per unit of risk. NETGEAR is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2,446  in NETGEAR on September 18, 2024 and sell it today you would earn a total of  134.00  from holding NETGEAR or generate 5.48% return on investment over 90 days.

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

Eastern Co  vs.  NETGEAR

Eastern

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eastern Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent primary indicators, Eastern is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

NETGEAR

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NETGEAR are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile technical and fundamental indicators, NETGEAR reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eastern and NETGEAR

The main advantage of trading using opposite Eastern and NETGEAR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eastern 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 Eastern Co 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.

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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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.