Correlation Between Gen Digital and F5 Networks

Can any of the company-specific risk be diversified away by investing in both Gen Digital and F5 Networks 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 Gen Digital and F5 Networks into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Gen Digital and F5 Networks, you can compare the effects of market volatilities on Gen Digital and F5 Networks 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 Gen Digital with a short position of F5 Networks. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gen Digital and F5 Networks.

Diversification Opportunities for Gen Digital and F5 Networks

0.92

Correlation Coefficient

Gen Digital  F5 Networks

Almost no diversification

The 3 months correlation between Gen and FFIV is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Gen Digital and F5 Networks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on F5 Networks and Gen Digital 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 Gen Digital are associated (or correlated) with F5 Networks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of F5 Networks has no effect on the direction of Gen Digital i.e., Gen Digital and F5 Networks go up and down completely randomly.

Pair Corralation between Gen Digital and F5 Networks

Considering the 90-day investment horizon Gen Digital is expected to generate 1.27 times less return on investment than F5 Networks. In addition to that, Gen Digital is 1.16 times more volatile than F5 Networks. It trades about 0.07 of its total potential returns per unit of risk. F5 Networks is currently generating about 0.1 per unit of volatility. If you would invest  17,973  in F5 Networks on September 13, 2024 and sell it today you would earn a total of  8,034  from holding F5 Networks or generate 44.7% return on investment over 90 days.

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

Gen Digital  vs.  F5 Networks

Gen Digital

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gen Digital are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very weak technical and fundamental indicators, Gen Digital displayed solid returns over the last few months and may actually be approaching a breakup point.

F5 Networks

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in F5 Networks are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile forward indicators, F5 Networks showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gen Digital and F5 Networks

The main advantage of trading using opposite Gen Digital and F5 Networks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gen Digital position performs unexpectedly, F5 Networks 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 F5 Networks will offset losses from the drop in F5 Networks' long position.

The idea behind Gen Digital and F5 Networks 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.