Correlation Between Geo and NAPCO Security

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

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

Diversification Opportunities for Geo and NAPCO Security

-0.27

Correlation Coefficient

Geo  NAPCO Security

Very good diversification

The 3 months correlation between Geo and NAPCO is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Geo Group and NAPCO Security Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NAPCO Security Techn and Geo 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 Geo Group are associated (or correlated) with NAPCO Security. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NAPCO Security Techn has no effect on the direction of Geo i.e., Geo and NAPCO Security go up and down completely randomly.

Pair Corralation between Geo and NAPCO Security

Considering the 90-day investment horizon Geo Group is expected to generate 4.28 times more return on investment than NAPCO Security. However, Geo is 4.28 times more volatile than NAPCO Security Technologies. It trades about 0.35 of its potential returns per unit of risk. NAPCO Security Technologies is currently generating about 0.32 per unit of risk. If you would invest  1,418  in Geo Group on September 4, 2024 and sell it today you would earn a total of  1,277  from holding Geo Group or generate 90.06% return on investment over 90 days.

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

Geo Group  vs.  NAPCO Security Technologies

Geo Group

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Geo Group are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting technical and fundamental indicators, Geo displayed solid returns over the last few months and may actually be approaching a breakup point.

NAPCO Security Techn

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NAPCO Security Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, NAPCO Security is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Geo and NAPCO Security

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

The idea behind Geo Group and NAPCO Security Technologies 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.