Correlation Between Emerson Radio and NETGEAR

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

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

Diversification Opportunities for Emerson Radio and NETGEAR

-0.69

Correlation Coefficient

Emerson Radio  NETGEAR

Excellent diversification

The 3 months correlation between Emerson and NETGEAR is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Emerson Radio and NETGEAR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NETGEAR and Emerson Radio 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 Emerson Radio 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 Emerson Radio i.e., Emerson Radio and NETGEAR go up and down completely randomly.

Pair Corralation between Emerson Radio and NETGEAR

Considering the 90-day investment horizon Emerson Radio is expected to generate 7.48 times less return on investment than NETGEAR. In addition to that, Emerson Radio is 1.24 times more volatile than NETGEAR. It trades about 0.01 of its total potential returns per unit of risk. NETGEAR is currently generating about 0.13 per unit of volatility. If you would invest  1,464  in NETGEAR on October 13, 2024 and sell it today you would earn a total of  1,164  from holding NETGEAR or generate 79.51% return on investment over 90 days.

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

Emerson Radio  vs.  NETGEAR

Emerson Radio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Emerson Radio has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Emerson Radio is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

NETGEAR

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NETGEAR are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent technical and fundamental indicators, NETGEAR reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Emerson Radio and NETGEAR

The main advantage of trading using opposite Emerson Radio and NETGEAR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerson Radio 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 Emerson Radio 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.