Correlation Between NetApp and TRI Pointe

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

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

Diversification Opportunities for NetApp and TRI Pointe

0.65

Correlation Coefficient

NetApp  TRI Pointe

Poor diversification

The 3 months correlation between NetApp and TRI is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding NetApp Inc and TRI Pointe Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TRI Pointe Homes and NetApp 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 NetApp Inc are associated (or correlated) with TRI Pointe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TRI Pointe Homes has no effect on the direction of NetApp i.e., NetApp and TRI Pointe go up and down completely randomly.

Pair Corralation between NetApp and TRI Pointe

Given the investment horizon of 90 days NetApp Inc is expected to generate 0.65 times more return on investment than TRI Pointe. However, NetApp Inc is 1.53 times less risky than TRI Pointe. It trades about 0.2 of its potential returns per unit of risk. TRI Pointe Homes is currently generating about 0.03 per unit of risk. If you would invest  11,755  in NetApp Inc on October 22, 2024 and sell it today you would earn a total of  454.00  from holding NetApp Inc or generate 3.86% return on investment over 90 days.

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

NetApp Inc  vs.  TRI Pointe Homes

NetApp Inc

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NetApp Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, NetApp is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

TRI Pointe Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TRI Pointe Homes has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with NetApp and TRI Pointe

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

The idea behind NetApp Inc and TRI Pointe Homes 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.