Correlation Between GMS and NETGEAR

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

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

Diversification Opportunities for GMS and NETGEAR

0.27

Correlation Coefficient

GMS  NETGEAR

Modest diversification

The 3 months correlation between GMS and NETGEAR is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding GMS Inc and NETGEAR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NETGEAR and GMS 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 GMS Inc 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 GMS i.e., GMS and NETGEAR go up and down completely randomly.

Pair Corralation between GMS and NETGEAR

Considering the 90-day investment horizon GMS Inc is expected to under-perform the NETGEAR. But the stock apears to be less risky and, when comparing its historical volatility, GMS Inc is 1.46 times less risky than NETGEAR. The stock trades about -0.52 of its potential returns per unit of risk. The NETGEAR is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  2,431  in NETGEAR on September 25, 2024 and sell it today you would earn a total of  408.00  from holding NETGEAR or generate 16.78% return on investment over 90 days.

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

GMS Inc  vs.  NETGEAR

GMS Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GMS Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable primary indicators, GMS is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

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 unfluctuating technical and fundamental indicators, NETGEAR reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GMS and NETGEAR

The main advantage of trading using opposite GMS and NETGEAR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GMS 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 GMS Inc 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.