Correlation Between NETGEAR and Silicon Laboratories

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

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

Diversification Opportunities for NETGEAR and Silicon Laboratories

0.68

Correlation Coefficient

NETGEAR  Silicon Laboratories

Poor diversification

The 3 months correlation between NETGEAR and Silicon is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding NETGEAR and Silicon Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Silicon Laboratories 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 Silicon Laboratories. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Silicon Laboratories has no effect on the direction of NETGEAR i.e., NETGEAR and Silicon Laboratories go up and down completely randomly.

Pair Corralation between NETGEAR and Silicon Laboratories

Given the investment horizon of 90 days NETGEAR is expected to generate 5.46 times less return on investment than Silicon Laboratories. But when comparing it to its historical volatility, NETGEAR is 1.07 times less risky than Silicon Laboratories. It trades about 0.04 of its potential returns per unit of risk. Silicon Laboratories is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  11,065  in Silicon Laboratories on November 28, 2024 and sell it today you would earn a total of  3,364  from holding Silicon Laboratories or generate 30.4% return on investment over 90 days.

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

NETGEAR  vs.  Silicon Laboratories

NETGEAR

Risk-Adjusted Performance

Weak

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

Silicon Laboratories

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Silicon Laboratories are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Silicon Laboratories sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NETGEAR and Silicon Laboratories

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

The idea behind NETGEAR and Silicon Laboratories 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.