Correlation Between NETGEAR and Capital Income

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

By analyzing existing cross correlation between NETGEAR and Capital Income Builder, you can compare the effects of market volatilities on NETGEAR and Capital Income 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 Capital Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of NETGEAR and Capital Income.

Diversification Opportunities for NETGEAR and Capital Income

0.18

Correlation Coefficient

NETGEAR  Capital Income

Average diversification

The 3 months correlation between NETGEAR and Capital is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding NETGEAR and Capital Income Builder in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Income Builder 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 Capital Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Income Builder has no effect on the direction of NETGEAR i.e., NETGEAR and Capital Income go up and down completely randomly.

Pair Corralation between NETGEAR and Capital Income

Given the investment horizon of 90 days NETGEAR is expected to generate 10.66 times more return on investment than Capital Income. However, NETGEAR is 10.66 times more volatile than Capital Income Builder. It trades about 0.16 of its potential returns per unit of risk. Capital Income Builder is currently generating about 0.01 per unit of risk. If you would invest  1,623  in NETGEAR on August 30, 2024 and sell it today you would earn a total of  781.00  from holding NETGEAR or generate 48.12% return on investment over 90 days.

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

NETGEAR  vs.  Capital Income Builder

NETGEAR

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NETGEAR are ranked lower than 12 (%) 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.

Capital Income Builder

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Capital Income Builder has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Capital Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with NETGEAR and Capital Income

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

The idea behind NETGEAR and Capital Income Builder 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.

Check out your portfolio center.

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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.