Correlation Between NetScout Systems and Rapid7

Can any of the company-specific risk be diversified away by investing in both NetScout Systems and Rapid7 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 NetScout Systems and Rapid7 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between NetScout Systems and Rapid7 Inc, you can compare the effects of market volatilities on NetScout Systems and Rapid7 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 NetScout Systems with a short position of Rapid7. Check out your portfolio center. Please also check ongoing floating volatility patterns of NetScout Systems and Rapid7.

Diversification Opportunities for NetScout Systems and Rapid7

0.77

Correlation Coefficient

NetScout Systems  Rapid7

Poor diversification

The 3 months correlation between NetScout and Rapid7 is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding NetScout Systems and Rapid7 Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rapid7 Inc and NetScout Systems 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 NetScout Systems are associated (or correlated) with Rapid7. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rapid7 Inc has no effect on the direction of NetScout Systems i.e., NetScout Systems and Rapid7 go up and down completely randomly.

Pair Corralation between NetScout Systems and Rapid7

Given the investment horizon of 90 days NetScout Systems is expected to generate 1.94 times less return on investment than Rapid7. But when comparing it to its historical volatility, NetScout Systems is 1.09 times less risky than Rapid7. It trades about 0.07 of its potential returns per unit of risk. Rapid7 Inc is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  3,671  in Rapid7 Inc on September 4, 2024 and sell it today you would earn a total of  584.00  from holding Rapid7 Inc or generate 15.91% return on investment over 90 days.

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

NetScout Systems  vs.  Rapid7 Inc

NetScout Systems

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NetScout Systems are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental indicators, NetScout Systems may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Rapid7 Inc

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rapid7 Inc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Rapid7 exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NetScout Systems and Rapid7

The main advantage of trading using opposite NetScout Systems and Rapid7 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NetScout Systems position performs unexpectedly, Rapid7 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 Rapid7 will offset losses from the drop in Rapid7's long position.

The idea behind NetScout Systems and Rapid7 Inc 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 Transaction History module to view history of all your transactions and understand their impact on performance.