Correlation Between NETGEAR and Ecolab

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

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

Diversification Opportunities for NETGEAR and Ecolab

-0.79

Correlation Coefficient

NETGEAR  Ecolab

Pay attention - limited upside

The 3 months correlation between NETGEAR and Ecolab is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding NETGEAR and Ecolab Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ecolab Inc 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 Ecolab. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ecolab Inc has no effect on the direction of NETGEAR i.e., NETGEAR and Ecolab go up and down completely randomly.

Pair Corralation between NETGEAR and Ecolab

Given the investment horizon of 90 days NETGEAR is expected to generate 2.55 times more return on investment than Ecolab. However, NETGEAR is 2.55 times more volatile than Ecolab Inc. It trades about 0.23 of its potential returns per unit of risk. Ecolab Inc is currently generating about -0.11 per unit of risk. If you would invest  2,006  in NETGEAR on September 29, 2024 and sell it today you would earn a total of  808.00  from holding NETGEAR or generate 40.28% return on investment over 90 days.

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

NETGEAR  vs.  Ecolab Inc

NETGEAR

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in NETGEAR are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating technical and fundamental indicators, NETGEAR reported solid returns over the last few months and may actually be approaching a breakup point.

Ecolab Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ecolab Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with NETGEAR and Ecolab

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

The idea behind NETGEAR and Ecolab 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.