Correlation Between NETGEAR and Bank of America

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

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

Diversification Opportunities for NETGEAR and Bank of America

-0.24

Correlation Coefficient

NETGEAR  Bank of America

Very good diversification

The 3 months correlation between NETGEAR and Bank is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding NETGEAR and Bank of America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of America and NETGEAR 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 NETGEAR are associated (or correlated) with Bank of America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of America has no effect on the direction of NETGEAR i.e., NETGEAR and Bank of America go up and down completely randomly.

Pair Corralation between NETGEAR and Bank of America

Given the investment horizon of 90 days NETGEAR is expected to generate 4.62 times more return on investment than Bank of America. However, NETGEAR is 4.62 times more volatile than Bank of America. It trades about 0.28 of its potential returns per unit of risk. Bank of America is currently generating about -0.34 per unit of risk. If you would invest  2,417  in NETGEAR on October 8, 2024 and sell it today you would earn a total of  335.00  from holding NETGEAR or generate 13.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

NETGEAR  vs.  Bank of America

NETGEAR

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in NETGEAR are ranked lower than 16 (%) 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.

Bank of America

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank of America has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, Bank of America is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with NETGEAR and Bank of America

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

The idea behind NETGEAR and Bank of America 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.