Correlation Between HE Equipment and NETGEAR

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

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

Diversification Opportunities for HE Equipment and NETGEAR

-0.36

Correlation Coefficient

HE Equipment  NETGEAR

Very good diversification

The 3 months correlation between HEES and NETGEAR is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding HE Equipment Services and NETGEAR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NETGEAR and HE Equipment 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 HE Equipment Services 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 HE Equipment i.e., HE Equipment and NETGEAR go up and down completely randomly.

Pair Corralation between HE Equipment and NETGEAR

Given the investment horizon of 90 days HE Equipment Services is expected to generate 5.08 times more return on investment than NETGEAR. However, HE Equipment is 5.08 times more volatile than NETGEAR. It trades about 0.12 of its potential returns per unit of risk. NETGEAR is currently generating about -0.06 per unit of risk. If you would invest  4,906  in HE Equipment Services on December 28, 2024 and sell it today you would earn a total of  4,637  from holding HE Equipment Services or generate 94.52% return on investment over 90 days.

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

HE Equipment Services  vs.  NETGEAR

HE Equipment Services

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HE Equipment Services are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, HE Equipment unveiled solid returns over the last few months and may actually be approaching a breakup point.

NETGEAR

Risk-Adjusted Performance

Very Weak

Over the last 90 days NETGEAR has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unfluctuating performance, the Stock's technical and fundamental indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with HE Equipment and NETGEAR

The main advantage of trading using opposite HE Equipment and NETGEAR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HE Equipment 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 HE Equipment Services 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.